IMPACT, DVANTAGES & DISADVANTAGES OF BLACK MONEY

IMPACT, DVANTAGES & DISADVANTAGES OF   BLACK MONEY

Impact of Black Money

The major and immediate threats according to economists are:

It leads to the wrong measurement of the size of the economy and thereby misleading the level of economic activity. Thus it poses a challenge to macroeconomic policy makers.

It diverts the scarce resources into non-priority areas

By creating a parallel economy through illegal activity, it poses a very serious threat to legitimate commercial activity

Encourages capital flight

It also erodes confidence in the government if the tax evasion is massive.

The circulation of black money has adversely affected the Indian economy in several ways. It would be of interest to study the impact of black money on the Indian economic and social system. 

i) It leads to the misdirection of precious national resources.

A part of black money is kept in a form that contributes nil/Little to productive activities.

(ii) It has enormously worsened the income-distribution, and has thereby undermined the fabric of the fixed income salary class finds itself ever be the lower rung of the income-ladder. They pay taxes. Quite a number among them, though not l the corrupt activities of getting bribes / commissions, etc. But in general they are not able to catch up with the people in business, or in professions, or many of those employed. Many in these categories make black activities. Many high placed official and honest employees earn much less than an average small shopkeeper in big cities like Bombay and Delhi.  

(iii) The existence of a big-sized unreported segment of the economy is a- big handicap in making a correct analysis and formulation of right policies for it. For example it is not possible to calculate accurately the vital indicators of progress like saving-income ratio, sectorial composition of national income, etc. Nor is it possible to monitor the developments in the economy with precision. Much of these estimates / monitoring of the economy are bound to be guesswork. No wonder the governments policies cannot be firm in their perception and deal weak data base. 

(iv)Black money results in transfer of funds from India to foreign countries through clandestine channels. Such transfers are made possible by violations exchange regulations through the device of under invoicing of exports and over-invoicing of imports thus finds itself in a paradoxical situation, where capital and more particularly foreign exchange resources are scarce, (the country) becomes a de facto lender of aid and capital to economically advanced and wealthier nations, with the concealed outflow of funds.  The situation has worsened further over the years. 

(v) Black money requires for its protection, proliferation and expansion of a service organisation composed of musclemen, touts and brokers to combat the forces of law and order on the one hand and on the other hand, there are income tax advisers, or chartered accountants in the pay of black money operators. Then there are contact men, better known as liaison officers who negotiate favors from top bureaucracy and political bosses through bribes of black money. This has developed a new black money culture in the business world. 

(vi)Last but not the least; black money has corrupted our political system in a most vicious manner. At various levels, MLAs, MPs, Ministers, party functionaries openly and shamelessly go on collecting funds.

The politics of black money thus has corroded the moral fibre of Indian polity. Ministers dole out favours of crores by accepting black money donations of a few lakhs from businessmen. Musclemen and criminals are fed by political parties to capture booths and thus elections are becoming more and more of a farce. National policies are, therefore, being bent in favour of the big business under the pressure of black money. Thus, it is the parallel economy which does the backseat driving, while the political leadership only acts as the mouth-piece of big business to justify the abolition of controls or introduction of a dual system of prices in the name of productivity or national interests.

ADVANTAGES OF BLACK MONEY:

The following are the advantages of black money:

The black economy is a cash economy.

It is liquid and fast.

It increases the velocity of money.

It injects much needed foreign exchange into the economy and inadvertently

increases the effective money supply and the resulting money aggregates.

It encourages labour mobility and international trade. It fosters economic activity and employs people.

DISADVANTAGES OF BLACK MONEY:

The following are the disadvantages of black money:

It is exploitative.

The money that the state collects from them is invested, for instance, in infrastructure (roads, phones, electricity) or used to pay for public services (education, defense, policing). The operators of the black economy enjoy these services without paying for them, without bearing the costs.

We all live in societies, which are regulated by bureaucracies that are controlled by politicians. These elites have a tendency to misuse and to abuse resources and to allocate them in an inefficient manner.