Black money is making headlines in the past couple of days, especially in India. The Indian government introduced a new policy in order to eliminate black money and it has caused a lot of chaos within the country, mostly for illegal holders. Black money can simply be defined as the money that obtained in an illegal manner without paying taxes. People use many different methods in order to get hold of black money. However, it has the potential to create a tremendous impact on the economy of a country.
Increased usage of black money can give life to a dual economy within the country. This can also be referred to a parallel economy. When black & fake currency operates in parallel to the reported or official economy, a variety of negative consequences can take place within the country. This has the potential to ruin the economic development of a country in the long run.
Black money can cause loss of revenue to the government as well. That’s because a lot of people use black money in order to stay away from taxes. This can cause loss of government revenue in the long run, which can impact the entire economic development of the country. When the government fails to receive enough money from taxes, it would tend to impose more and more taxes on the people. This can generate ill economic effects as well.
Under estimation is another prominent issue that is related to black money. In other words, black money can give an incorrect picture about the economy of a country. The official records would get underestimated as a result of it, including the estimates of consumption and savings. These macroeconomic variables can be misleading for planning considerations and accurate policy making. Moroever, black money can create distortion in the production pattern.
Black money deteriorates the general moral standards that can be found within the society. That’s because generation of black money differs a lot from the accepted norms in the society. In addition, it can create a negative impact on the average effect on production. The consumption pattern would get tilted over elite and rich people. When the overall consumption increases, a lesser amount of resources would be left out for investment. This can create a bigger impact on the economy of priority areas.
The Indian government has taken a wise step in order to eliminate black money from the society. Even though people will have to face a lot of hassle with it for the next few days, it is beneficial for the long term economy of the country. Currently a large number of 500 and 1000 rupee notes are being circulated within the society as black money and they would get eliminated as a result of the new regulations.