Table of Contents
Black money economy is the main cause of crime and corruption (69th BPSC)
“Corruption is like a ball of snow, once it’s set a rolling it must increase.” – Charles Caleb Colton
The black money economy is one of the primary drivers of crime and corruption in society. In reality, there is no such thing as “black money”—money is just money. However, the distinction between “black money” and “white money” is essential. “White money” refers to legally earned income that is accounted for and taxed by the government. It contributes to the nation’s economy and helps fund public welfare programs. In contrast, “black money” refers to unaccounted cash transactions that are deliberately hidden from tax authorities. While the term has no official definition in economics, it is often referred to as the “parallel economy,” “shadow economy,” or “illegal wealth.” Simply put, black money is income that individuals or businesses conceal to evade taxes, making it invisible to official financial records and economic indicators.
Black money is a global problem, but its impact in India is particularly alarming. According to a recent report by the Bank of Italy, India’s share in tax havens worldwide is estimated at $152-181 billion, roughly ₹10 lakh crore. Meanwhile, the Global Financial Integrity Report ranks India eighth in terms of black money generation. There are two primary sources of black money. First, earnings from illegal activities such as smuggling, drug trafficking, and corruption, which are naturally concealed from authorities. Second, income from legal businesses that is not declared to avoid taxation. In India, major sources of black money include benami transactions, hawala operations, tax evasion through offshore accounts, real estate investments, and shell companies. High tax rates, a complex taxation system, bureaucratic corruption, illegal trade, and excessive election campaign expenses further contribute to the spread of black money.
The black money economy is not just an economic issue; it has profound social and cultural consequences. The accumulation of black money leads to a significant loss of government revenue, reducing funds for public welfare and infrastructure development. Some experts argue that black money creates a “parallel economy,” operating alongside the official financial system. Since black money holders evade taxes, the country’s national income appears lower than its actual earning capacity. Reduced government revenue means fewer resources for essential public services like healthcare, education, and infrastructure, which ultimately degrades their quality. Additionally, corruption thrives in such an environment, as those with black money can bypass regulations and bribe officials to get their way. According to a report by the Association for Democratic Reforms (ADR), a substantial portion of black money is used in election campaigns, fueling political and administrative corruption. Furthermore, black money damages a nation’s credibility, as it is often linked to illicit activities such as arms and human trafficking, drug trade, and organized crime. It also funds terrorism and separatist movements, posing a serious threat to national security.
To combat black money, the Indian government has introduced several legal, institutional, and policy measures. Key legislative efforts include the Prevention of Corruption Act (1988), the Prohibition of Benami Transactions Act (1988), and the Prevention of Money Laundering Act (2002). Additionally, government agencies such as the Central Bureau of Investigation (CBI), Enforcement Directorate (ED), and Lokpal & Lokayukta have been established to monitor and curb black money-related crimes. Policy initiatives like the “Income Declaration Scheme” and “Demonetization” (2016) were also introduced to bring unaccounted money into the formal economy.
India has also taken steps at the global level to curb black money. One such initiative is its participation in the Financial Action Task Force (FATF), an international body that formulates policies to combat money laundering and the financing of terrorism. However, legal measures alone are not sufficient to eliminate black money. A comprehensive approach, including social and ethical reforms, is needed. Strengthening moral values and fostering transparency in financial transactions are critical to addressing this issue.
As Dr. A.P.J. Abdul Kalam once said, “If a country is to be corruption-free and become a nation of beautiful minds, I strongly feel there are three key societal members who can make a difference – the father, the mother, and the teacher.” To achieve a corruption-free society, it is essential to promote ethical awareness from an early age. In this regard, principles like “Aparigraha” (non-possessiveness) and “Right Livelihood” from Buddhist philosophy can serve as guiding values to create a more transparent and just economic system.
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