Poverty and black money affect entrepreneurial growth worldwide. Entrepreneurial growth is a key element in alleviating poverty in underdeveloped countries. In this article, I will be discussing how these affect entrepreneurial growth. But before I get into that, I will discuss what these terms mean and the consequences of having black money.
What is Poverty?
Poverty is defined as a state or condition in which a person or a group lacks the financial means and essentials to live comfortably. Poverty is described as a circumstance in which one’s earnings from employment fall short of meeting basic human needs. Individuals and families living in poverty may lack access to suitable housing, safe drinking water, nutritional food, and medical treatment. Each country may have its poverty line that determines the number of poor individuals.
Poverty is a result of a person’s circumstances, not a personal trait. It’s possible to represent it in absolute and relative terms. Absolute poverty is described as a person’s inability to meet basic requirements such as food, clothing, and shelter due to financial constraints. The individual or family is having difficulty making ends meet and has restricted options.
What is Entrepreneurial Growth?
The term “entrepreneurial growth” relates to how a company plans to expand and grow in terms of quality, quantity, and turnover. Entrepreneurial growth can be seen in innovators, business developers, radicals, expanders, and customers. An entrepreneur is someone who is prepared to take risks and put in the work to expand his or her business, will certainly succeed.
By its very essence, entrepreneurship is democratic. It doesn’t matter one’s age, gender, race, ethnicity, creed, sexual orientation, or disability status. Neither should one’s socioeconomic condition. The purpose is to highlight how people in tough conditions may succeed as entrepreneurs and to make entrepreneurship a viable option for the impoverished.
Entrepreneurship is really about empowerment and transformation. Through venture development, people can build their employment, futures, assets, wealth, and contributions to the community and society. They recognize and act on environmental opportunities regardless of the resources at their disposal. They transform themselves, their families, markets, and communities in the process.
What is Black Money?
“Black money” refers to all earnings obtained through illegal acts as well as lawful income that is not reported for tax purposes. Because the proceeds of unlawful economic activities are typically received in cash, they are not taxed. Black money recipients must keep it secret, spend it exclusively in the underground economy, or utilize money laundering to give it the appearance of legitimacy.
How does Black Money Work?
In its most basic form, black money is money on which no taxes are paid to the government. Consider a shop that only accepts cash and doesn’t provide customers with receipts. That store is dealing in dark money because it refuses to pay tax on unregistered purchases. Consider the instance of a land purchaser who pays $200,000 for a piece of property. If the buyer only reveals $50,000 on the books and pays $150,000 under the table, there is a $150,000 black money transaction. The vendors made money from legitimate sources in both situations, but they evaded paying taxes.
The most common source of black money is the black market or the underground economy. Black market activities include the sale of illegal drugs, gun-running, terrorism, and human trafficking. The Black-market activity also includes less serious offenses such as the sale of counterfeit goods, stolen credit cards, or pirated versions of copyrighted material.
The amount of black money in a country’s income has an impact on the country’s economic growth. Untaxed unreported income results in revenue loss for the government, resulting in financial leakage. Furthermore, these funds are rarely deposited in banks. As a result, reputable small businesses and entrepreneurs may have a harder time obtaining finance.
Furthermore, secret money reduces the value of a country’s financial stability. It is extremely difficult to estimate the amount of black money in any economy. Given the enormous incentives that participants in the underground economy must keep their activities covert, this is predictable. These unreported earnings cannot be included in a country’s gross national product (GNP) or gross domestic product (GDP) (GDP). As a result, estimates of savings, consumption, and other macroeconomic indicators in a country are likely to be off. These mistakes hurt policymaking and planning.
How does Black Money Affect Entrepreneurial Growth?
One, black money causes the government to lose a considerable amount of revenue that could otherwise be used to enhance economic growth. Two, attempting to close the gap by raising indirect taxes increases the tax burden on the poor, undermining mass demand.
The short explanation is that black money can, at best, act as a steroid that momentarily increases economic development. Long-term reliance on it can be harmful to a country’s economy and people.
The black economy’s growth has an impact on absolute poverty. Growth in GDP does not always reflect an improvement in people’s well-being due to the rise in societal waste.
In many ways, creativity is more difficult than duplicating proven business ideas. Individuals moved regularly for work and study, exposing them to a diverse spectrum of viewpoints and allowing them to speak with other migrants. The migration assisted or facilitated the creative process. Poverty afterward made it tough to continue their artistic pursuits.
Incubators and cash subsidies are intended to help people develop their creative ideas and keep their creative businesses afloat. Although monetary incentives and incubators are the best strategies to help micro-entrepreneurs establish new businesses, there are many additional options. Short-term training programs, for example, are beneficial, particularly among the poorest of the poor, and considerably more effective when supplemented with monetary incentives.
What impact does black money have on economic growth and development?
Because the black and white economies work together, the economy is far larger than it appears. On the other hand, the illicit economy decreases the likelihood of expansion because it develops efficiencies everywhere. Take the term “digging holes and filling holes,” for example. One person digs a hole during the day, while another person fills it at night. Two earnings are generated the next day with no increase in output. If you create a road without enough tar, it will be washed away, and you will lose your investment.
As a result, there has been a 5% annual loss of growth on average during the last 30-40 years. We could have increased at an annual rate of around 8% from the 1970s when the black economy amounted to roughly 10% of GDP if we added 5% to GDP growth, which was around 3% at the time.
Over the last 10 years, we have expanded at a rate of around 7%; without black money, we could have risen at a rate of over 12%. We would now be an $18 trillion economy, approximately the size of the United States, instead of a $2.2 trillion economy. Our per capita income would have been $13,000 instead of $1,500.
Black money stifles economic growth and perpetuates poverty. The fact that black money is concentrated in the hands of only 3% of the population exacerbates inequality.
Because the black economy does not refer to currency, squeezing out cash will have no effect. Cash represents only 1% of total black wealth and has no impact on black income development. Demonetization had minimal impact on the black economy as a result.
If the black economy accounts for 62% of GDP, it must contain some illicit activity. This is only possible if certain structural conditions, such as a “triad” of policymakers, executives, and enterprises, are in place. To combat dark money, this “triad” must immediately be dismantled. We expect the executive branch, the bureaucracy, and the business community to take responsibility. Politicians are ultimately accountable to the voters; thus, this can be accomplished through the electoral process.
It is necessary to develop political consciousness, which is a long and difficult process. There have been various anti-corruption movements since the 1970s, but none of them has succeeded. Combating the underground economy necessitates a long-term effort to raise political awareness.
Black money can be a hindrance to entrepreneurial growth because it is not legal. To have entrepreneurial growth, one must have white money. Poverty can also hinder entrepreneurial growth since money is needed for it. That is how black money and poverty affect entrepreneurial growth.
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