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The Black Money

Poor law procedures and high corruption are one of the major reason for black money. The consequences of black money are being faced by mostly the common men in day to day life. Presently we are witnessing the worst impact of black money on the countries worldwide and its people. 

The Black Money


In years since the money was invented, the attachment of humans with money brought a tendency to collect it more. It even gave birth to a saying,-"money is the root cause of all evil' which later was corrected as-"greed is the root cause of all evil'. 
The race for money has totally spoiled our ethics and morals. 
A large underground economy and growth of black income lead to under-estimation of the true size and incorrect picture of the economy by the officially compiled national income data.

What is black money?


There is no exact definition of black money in economic theory, with several different terms such as parallel economy, black money, black incomes, unaccounted economy, illegal economy, and irregular economy all being used more or less synonymously. 

The simplest definition of black money could possibly be money that is hidden from tax authorities.
The Black Money


Growth of black money causes the regressive distribution of income in society. When the black money grows faster, the rich become richer and the poor become poorer. 

By way of concentration of income and wealth in a few hands, the black money widens the gap between the rich and the poor.

The higher percentage of black money is involved in the real estate sector. The person having the black money finds often shows interest in buying a property. This has created inflation in the market of house. 

Also,  has resulted in the increase if prices of the property so much that a common man now doesn’t even dream to buy a new house for better living.

Black money can be divided into two categories
The first category is the more obvious of the two. Money that is earned through illegal activity is obviously not reported to the tax authorities.

The second category of
Black Money is an income from a legal activity that is not reported to the tax authorities.
For example – let us assume that a piece of land is sold, with the payment made in the proportion of 60% by cheque or electronic transfer, and 40% in cash. If that 40% cash component is not reported to the Income Tax Department, then it is black money.

 A large number if small shops around the country almost exclusively do business in cash without receipts. All of this could potentially be black money.


How does it affect the country?
The black money has never shown its impact in India as there is no data available. But in India, the indirect effects of black money are an obstacle to the growth of the country. 

Since there is a large amount of black money, the impact of black money is also larger on the population.
The Black Money


The worst impact of black money continues to increase in inflation at a superb speed rate. Higher inflation has to affect middle and poor class families very badly. 

Since a high amount of cash in limited hands has increased the purchasing power of that limited people and hence resulted in the growth of market and price.



What can be the consequences of Black money?

Black money could harm the system when it is already a part and parcel of it. 

The first, it distorts the national statistics as transactions carried out with black money do not get recorded. Therefore, published figures for production, distribution, employment, etc. are not reliable for national planning. 

Other consequences are: - evasion of taxes deprives the government of much-needed revenue, and thus hampers growth and development.

It contributes to inequality in the society as black money earned is cheap money which is spent in a lavish way in disregard to cost of goods and services.

This also leads to scarcities on the one hand and rise in prices on the other, which are a great strain to the weaker section of the society.

The large chunk of black money invested in unproductive channels like holding of gold contributes within the country.

Black money fuels corruption in the administrative and political system and corrodes the moral fiber of the society in a vicious manner. 

It can also be used for crimes of anti-social activities. In heinous crimes against society, like terrorism.
Indian economy
The major reason impact money in India is on India economy. Since black money is not taxed income and hence there is no revenue generation by the government by this. 
As in India, the expected black money is in the trillion dollars, the revenue which would have generated from that have created a larger tax revenue to the government and the better economic flow in the country.
Since the black money of Indian is mostly deposited outside India, resulting in a decreasing rate of investment in India. It has reduced employment opportunities in India. 

Money in Swiss bank
Rank in terms of money parked by its citizen and enterprise with a Swiss bank, UK has retained its top position, whereas the US, West Indies, France, and Hong Kong in the top five. 

These countries alone account for more than 50% of the aggregate foreign funds parked with the Swiss banks, while the top-10 account for nearly two-thirds.
The top-15 countries account for nearly 75% of all foreign money in Swiss banks, while the contribution of the top-30 is almost 90%
The top- 10 countries also include Bahamas, Germany, Luxembourg Gayman Island and Singapore.
India has moved down one place to 74th, In 2018 India was ranked 73rd, after jumping 15 places from its 88th position a year ago.
An analysis of the latest annual statistics released by the Swiss National Bank shows that India remains ranked very low when it comes to money parked by Indian individuals and enterprises in Swiss banks, including through their India-based branches, while accounting for juts about 0.07% of the aggregate funds parked by all foreign clients of Switzerland-based banks.
This data released by the central banking authority of the Alpine nation.



BRICS nations with black money
Five-nation BRICS bloc of emerging economies, India is ranked the lowest while Russia is ranked the highest at 20th place, followed by China at 22nd, South Africa at 60th and Brazil at 65th place in terms of the amount of money parked by their residents and enterprises at the end of 2018.
However, India’s neighboring nations are ranked lower, with Pakistan ranking 82nd, Bangladesh 89th, Nepal 109th, Sri Lanka 141st, Myanmar 187th, and Bhutan 193rd. This is the first time in the last four years that funds linked to Pakistan in Swiss banks have slipped below that of Indians.

How accurate is the black money information?
The funds, described by Swiss National Bank as ‘liabilities’ of Swiss banks or ‘amounts due to’ their clients, are official figures disclose by Swiss authorities and do not indicate the exact quantum of the much-debated alleged black money held in frames safe havens if Switzerland.
The official figures, disclosed annually by Switzerland’s central bank, also do not include the money that Indians, NRIs of others might have in Swiss banks in the names of entities from different countries it has been often alleged that Indians and other nationals seeking to stash their illicit wealth abroad use multiple layers if various jurisdiction, including tax, havens, to shift the money Swiss banks.
With Switzerland putting in place an automatic information exchange framework with India and various other countries, the famed secrecy walls of Swiss banks are said to have crumbled. 
The Black Money


Will India will be able to get automatic data from 2019?
Apparently, India will start getting the automatic data from this year, while it has already got information on accounts where proof of illicit funds can be furnished.
The funds officially held by Indians with banks in Switzerland now accounts for only 0.07% of the total funds kept by all foreign clients in the Swiss banking system, almost same as the seen at 2017-end after a modest increase from 0.04% a year before that, as per an analysis of the latest figures compiled by the Swiss national bank as on 2018- end.
India was ranked in the top-50 continuously between 1996 and 2007, but its ranks started declining after that: 55th in 2008, 59th in 2009 and 2010 each, 55th again in 2011, 71st in 2012 and then to 58th in 2013.
Money parked by Indian clients fell by nearly 6% in 2018 to 955 million Swiss francs (about Rs, 6,757 crores) to hit its second lowest level in over two decades.



Why is black money so difficult to measure in India?
It’s very difficult to figure out or measure black money, according to the standing committee’s report, the sector that see the highest incidence of black money include real estate, mining pharmaceuticals, pan masala, the gutkha, and tobacco industry, bullion and commodity markets, the film industries, and educational institutes and professionals.
Every estimate depends upon the underlying assumptions made by the designer of the measurement, and so far there is no uniformity in the assumptions made by the various agencies tasked with measuring the black economy.
One of the more popular methods is the monetary method. This assumes that the existence of and changes in the share of unaccounted income is reflected in the stock of flow of money in the system. In other words, track the money in the economy and you’ll get an idea of how much has not been accounted for.
Another common method is the quantity of land freight transport; the ideas is that matching the actual amount of freight transported in the country to the reported amount of economic activity in the related sectors could give an estimate of how much is not being reported.
The Black Money


A way forward
There are many ways to curb money black money, first is through legislative action. Stringent laws are needed to control the flow of black money. The government enacted several laws that seek to formalize the economy and make it necessary to report economic transactions. 

These include the Central Goods and Services Tax Act, state-level act, 2015, the benami transactions (prohibition) Amendment Act, and the fugitive economic offenders Act. 
However, there is a need to implement these Acts with proper mechanism then only black can be controlled.
Another method employed by the government to make it harder for transactions to be hidden is to mandate the reporting of PAN for transactions of more than 3.5 lakh rupees, and the prohibition of cash receipts of 2 lakh or more and penalty equal to the number of such receipts if a person contravenes the provision.
Income Tax Department can also play a very important role, as it has already started monitoring non-filers of income tax returns using third-party information to identify who has undertaken high-value financial transaction but not filed their returns.
The government should also focus on shell companies and make strict laws to control such offenders who make double their money and keep in other countries.

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