Black Money: A blot on Indian Economy

Black money is a known corrupter of the Indian economy. Poor people suffer due to this. This blog talks about how the black money creates problems for the revenue of the Government and transparency in day to day activities for common man. Read along to know how this can be curbed and what can each of us contribute.


The most unfortunate aspect of our country is that black money is accepted as a normal fact of life. It is also known as tainted money, has seeped into the normal life of each individual and is destroying the Indian economy. It in normal terms means ‘unrecorded gains’. In other words, it is income which has escaped taxation. It may be hoarded in cash, but eventually, gets itself converted into various assets like property, jewelry, and durable consumer goods. Almost every branch generates and uses black money for its survival in the market. It includes NGOs, real estate, external trade, etc.

Impact of Black money

Giving rise to a parallel economy as a consequence of the growing proliferation of the tainted money has been affecting the Indian economy a lot. The following are the impact of tainted money on Indian economy:

  1. The most common and direct effect of black money is the loss of revenue to the state exchequer as a consequence of evading tax.
  2. Black money is also affecting the life of the middle class in the country, it is an accepted fact that black money has encouraged the purchase of real estate and investment because of which a lot of black money is made white. Due to this, the prices of land have reached heights, as a consequence, the middle class are not been able to buy houses.
  3. Black money has left the country in a paradoxical situation because of the transfer of funds from India to other foreign nations through clandestine channels.
  4. Underestimation of the GDP of the country is another effect of black money to the economy.
  5. Mass poverty is another result of black money, if all the black money is recovered and used by the Indian government, all the liabilities of the country could be paid and money would still be left to spend.
  6. The country is facing a shortage of capital to upgrade technology in all the sectors due to the existence of black money.[1]
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Measures to be taken by the government

The Dangli Committee on Controls and Subsidies (1980), the Rajah Chelliah Committee, and the National Institute of Public Finance and Policy (1985), the Wanchoo Committee recommendations on the Government enacted the Taxation Laws (Amendment) Act, 1975 are some of the committees that were set up in order to fight against black money.  Economic liberalization was yet another way to reduce the amount of tainted money in the country.

Dealing with tax evasion has always been one of the most difficult challenges for governments all round the world. Tax evasion is done by individuals belonging to different strata of the society in different ways. As per the surveys and reports, there are many people who provide false income details to the tax authorities to reduce the amount of liability. The income tax evasion penalties can help the government recover maximum amounts in the form of tax and utilize the money for the benefit of the common public. Tax evasion is one of the basic causes to generate the black income. Therefore, various measures were undertaken to plug the loopholes in tax evasion. Most of these measures were based on the recommendations of various committees and commissions viz Taxation Enquiry Commission (1953), Administrative Reforms Commission (1969), Direct Tax Enquiry Committee (1971) etc. Most of these recommendations were an upgrading in tax laws.[2]

The NDA government in 2016 took a step to fight against tainted money by demonetization. In which notes of Rs. 1000 and Rs. 500 were banned. The creditability of demonetization and how useful was it is still debatable. Another such step was the introduction of GST which made the taxation system very simple, the tax schemes under GST are still not fixed and keeps on changing by every GST meet.


Parallel economy is a new threat for the Indian economy. In India parallel economy is expanding very rapidly. Government of India introduced commissions under Kaldor, Wanchoo, Rangnekar, Chopra, and Gupta for estimating black economy. There are many factors like Controls and Licensing System, Higher Rates of Taxes, Ineffective Enforcement of Tax Laws, Inflation, Funding of political parties etc. that influence its growth. In India amount of black money is increasing continuously which badly impacts the economic growth of the nation. Such money is a new challenge for Indian economy. Indian economy is badly affected by black money as it is underestimating GDP, increasing inequality of income, increasing illegal activities etc. Over the past 70 years, the government has at various times announced several schemes offering opportunities to bring black money overboard but the result are not so effective. Some of these schemes are: introducing the scheme of Special Bearer Bonds, demonetizing high denomination currency notes, stringent raids and scheme of voluntary disclosures. These instruments are expected to reduce the volume of the black economy.

Also read Rampal Singh v. Rias Ahmad Ansari & Anr.

[1]Dr. ShaliniKapur, Impact of Black Money on Indian Economy ( Available at: )

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[2]Manpreetkaur, Black money in India: Current status and impact on economy ( Available at: