Indian Prime Minister Narendra Modi’s decision to demonetise RS500 and RS1,000 notes on November 8 came with very little warning.
The decision, targeted at people hoarding black money, had to be executed swiftly to stop people using the money to buy other assets.
RS500 and RS1,000 notes together account for more than 85% of the total value of bank notes in circulation in India, and all of this, with the exception black money, will now be returned to the formal banking system.
This will serve many purposes, including reducing unaccounted money, reducing the cash-carry economy and encouraging more electronic transactions.
The move will also strengthen the deposit base of banks substantially. Many of India’s banks are struggling for capital due to high levels of bad loans. The deposits of large pools of high-value denominated cash will ultimately help the banks to lend more.
The public can exchange the outdated bills until December 30, which will likely increase the demand for statutory liquidity requirements at the banks. This will increase demand for government securities and cause a fall in bond yields. The higher deposit base may result in a decline in interest rates, thereby promoting enhanced investment and growth in the long-run.
Cash and carry transactions make up 12% of India’s GDP, much higher than its peers. High value currencies help the hoarding of black money, tax avoidance and terrorism funding. They also enable a parallel economy which is difficult to control and where policies are less than effective.
The government’s plan to promote the non-cash payment system will lead to better monitoring, regulating and policy effectiveness. It may enable the government to widen the tax base, help cleanse electoral politics (where campaigns are often funded with cash), and control Hawala transactions. Scrapping high-value notes will also increase the possibility of detecting and controlling corruption.
Part of a bigger policy platform
The currency switch is one of a number of steps taken by the Modi government to crack down on corruption and tax avoidance.
The government has already set up a special investigation team on black money, and in the 2016-17 Union Budget it offered those with undisclosed income and assets located in India a tax amnesty. A tax rate of 45% was levied on assets declared under the scheme. Almost US$10 billion of undisclosed assets were declared, according to the tax department, which could net the government US$4.5 billion in tax revenue.
Crackdown on cash
But the best way to reduce corruption and black money in the economy is to move from an informal economy predominantly dependent on cash, to electronic transfers. This will require universal banking accessibility.
The Government launched the Jan Dhan Yojana (People Money Scheme) in 2014 aimed at boosting financial inclusion, and nearly 220 million accounts had been opened by April 20, 2016.
But the success of the government’s move to target the black economy will depend on how effectively government counters the inconvenience faced by people and groups that solely depend on the cash and carry economy. Already there are reports of Indians queuing for hours, not only to deposit their expired notes but also just to withdraw cash at ATMs.
Meanwhile, it’s estimated only 10-15% of the population has ever used any kind of non-cash payment instrument, compared to 40% of people in countries like Brazil and China. Increasing the horizon of non-cash users along with convenient, reliable, secure, and affordable payment systems will have implications for access to other financial services such as loans and insurance to the unbanked, particularly in the wake of financial inclusion initiatives.
The challenge will be to strengthen the digital infrastructure of banks and vendors failing, both of which are likely to see the threat of cyber-related theft increase.
Even though the government has made efforts to ensure all rural citizens have a bank account through the Jan Dhan Yojana, many people in rural areas are still without accounts.
Migrant workers, landless workers, potters, contract labourers, street vendors, rickshaw pullers, female workers, housewives, and others all generally keep money stashed at their homes. These people will be forced to spend time and resources to get their money converted into currency notes of valid denominations. This move will cause a severe cash crunch for both customers and sellers. This could lead to slowdown in business for a few weeks. The small artisans and street vendors who deal only in small cash transactions will have a tough time.
The real estate and housing construction sector are also likely to take a hit. Black or unaccounted money has long been suspected of being steered into the construction sector and inflating real estate prices. Demonetising high value currencies should curb property prices in a real estate sector which is already battling a prolonged demand slowdown. Land deals are also likely to be put on hold for some time.
The jewellery market and other luxury consumer sectors will also be affected in the short term as cash based transactions slow down.
Some of the other sectors which heavily depend on high value cash transactions including unaccounted black money are trade, mining, transport, hotels & restaurants and some luxury consumer goods sectors.
Ultimately, all this inconvenience is short term and in due course the Indian economy will adapt itself to these changes, curbing the growth of India’s black economy.
Black money is basically the accumulation of income obtained illegally. It is not declared for tax purpose. The issue of black money is prevalent in India and the government has come up with stern measures to deal with it lately.
The money earned via unlawful means is known as black money. There are various sources of generating black money and people have been practicing these since decades despite the negative impact they have on the society. Here are essays on Black Money of varying lengths to help you with the topic in your exam, class tests or competitions.
Essay on Black Money
Black Money Essay – 1 (200 words)
The problem of black money is not new to our country. Money generated via various illegal sources and the attempt to hide it from the government for the purpose of tax evasion has been a common practice here.
The problem of black money has given rise to a number of other issues in India. False information about the country’s economy is among the major issues being faced due to black money. The government is completely dependent on the tax revenue and evasion of tax to accumulate black money has a major impact on the nation’s fiscal system. Apart from the impact it has on the nation as a whole this also impacts the general public as it is the basis of social and economic disparity in the country.
There are a number of causes of accumulation of black money. The high tax rate set by the government is said to be the main reason for it. Other reasons include the different rates set for excise duty, the price control policy, the real estate market, inflation and quota system. People look for various ways to hide their income from the government and get away with it.
The need to stop this practice must be sensitized. While the government is taking steps to eliminate this problem it cannot achieve success in this direction if the public doesn’t support.
Black Money Essay – 2 (300 words)
Black money is basically the money earned in black market. It is the amount which is hidden from the government so as to avoid taxation on the same. The accumulation of black money has several negative repercussions on the society with economic and social disparity being the major ones.
Sources of Black Money
Now the question remains that when there are so many negative impacts of black money then why isn’t the government taking steps to eradicate the problem? Well, the government is making efforts to free the country of black money however the sources of this ill practice are stronger than the policies imposed to get rid of it.
It goes without saying that evasion of different types of taxes including the income tax, state taxes, corporation tax, excise duty and customs duty is the key to generating black money. Here is a look at the various other sources of black money:
- Black income via exports: A lot of black money is generated by businesses that export their goods.
- Black market: The good supplied in the black market are another source of black money.
- Stock Market: A lot of profit is generated via the stock market trade and most of it goes unaccounted. It is this unaccounted profit that makes for the accumulation of black money.
- Illegal commissions: Many government officials take illegal commissions from the general public for offering certain services. The income earned via this means is all black.
- Bribes: A lot of bribery goes on at different levels in the government as well as private sector and this also contributes to black money.
- Scams: Scams done by politicians and other people in power are undoubtedly a major source of black money.
The problem of black money has persisted in our society since decades. It is high time the government should come up with a foolproof plan to free the country from the clutches of this ill practice.
Black Money Essay – 3 (400 words)
Black Money is one of the major problems being face by our country these days. This is one of the reasons behind the economic disparity that in turn causes social inequality which is the root cause of several problems in the country. There are a number of factors that lead to this problem. Some of these include the high rate of tax, increased cost of living, inflation, different rates of excise duty and the real estate market.
Ways to Control the Problem of Black Money
It is important to control the problem of black money as it is hampering the growth and development of the country to a large extent. Here are some of the ways in which we can control this issue:
- The tax system should be realistic. People must not see it as a burden. High tax rate would only make people look for ways for tax evasion.
- The process of tax collection must be made more efficient. The government must take certain steps to award the officials who are dedicated and sincere towards this task so as to motivate more and more officials to take this seriously.
- The government must work on its price control policy as it is also one of the reasons behind the generation and accumulation of black money.
- The public sector projects must be monitored stringently so as to bring down their expenditure.
- The private sector investment expenditures must also be monitored effectively.
- The government must take action against the corrupt officials who in many ways contribute to the growth of black money.
- Administrative corruption must be controlled at various levels.
- The sale and purchase of properties must be thoroughly monitored by the IT officials to ensure that people do not hide any black money in the event.
- The politicians, celebrities, senior civil servants and media people must set an example for the general public to pay their taxes.
- Incentives should be given to those who provide voluntary disclosures of income.
- The exchange rates must be realistic and should reflect our comparative rates and position in the world economy.
While the Modi government has taken the step of demonitization to break this illegal wealth accumulation, there is still a lot that needs to be done in order to bring this problem down. People must understand the importance of paying the tax and should refrain from concentrating black money. The small contribution each citizen does in the form of taxes helps in the development of the country.
Black Money Essay – 4 (500 words)
Black money is the money on which tax is not paid. It is hidden from the government just to keep it exempted from tax. There are a number of means used by people to keep their money under wraps and escape from paying the tax. Here is a look at some of these and also the way government has tried to curb this problem in the recent past.
Black Money Deposited in Foreign Lands
Many big business men, ministers and celebrities are known to have deposited their money in foreign banks. Though the total amount deposited by Indians in foreign bank is not known, there are many reports claiming estimate amount of money deposited by Indians in their foreign accounts. As per one of these reports a whopping US$1.06 trillion has been held in Switzerland while another report claims that Swizz bank accounts of Indians includes around US$2 billion. It has also been claimed that illegal funds of Indians in foreign tax havens amount to around US$ 500 billion.
Demonetization – A Step to Eradicate Black Money
Recently, the Modi government took a major step to eradicate the problem of black money. On the 8th of November 2016, Narendra Modi announced that 500 and 1000 rupee notes would cease to be legal from midnight. ATMs all across the country were closed on 9th and 10th of November. These were refilled with 2000 rupee notes and new version of 500 rupee notes. The old notes were removed completely from circulation. As per the government this action would bring down the accumulation of black money and bring down the illegal businesses and activities that are funded by the same.
The sudden announcement of the withdrawl of old currency notes and the shortage of new notes created havoc in the country and disrupted the normal functioning across of various sectors for several weeks. The decision had mixed reactions from the public. The decision was condemned by many stating that it has only caused inconvenience to the general public. It has been criticized for being poorly planned. Public came out to protest against the government in various parts of the country.
However, the government claimed that the move is aimed at improving the overall condition of the society and people will see the positive results in the long term.
Impact of Demonetization
While the move was condemned and criticized by many here is a look at the positive impacts of demonetization:
- Black money was majorly destroyed due to this move of the Modi government.
- It came as a shock for the political parties and ministers who used black money for campaigning and other activities. It disrupted the ill practices used by these parties to win votes.
- The amount of black money floating in the real estate sector saw a huge dip.
- Hawala transactions that promote terror activities came to a halt.
- It has also impacted Maoists and their movements negatively.
The issue of black money has been eating the country like a parasite. While demonetization has helped in controlling it to some extent there is still a lot that government should do to get rid of this issue.
Black Money Essay – 5 (600 words)
People earn money from different sources and do not bring it to notice so that they can refrain from paying tax. This accumulation of money on which tax is not paid is known as black money. The problem of black money has been prevalent in our country since long. There are a number of factors that contribute to this problem.
Causes of Black Money
Here is a look at the various causes that lead to the problem of black money in India:
- High Tax Rate
The rate of tax in India is quite high. The increase in the taxes and duties has forced people to take the route to illegal wealth accumulation. Tax free income limit in the country is just Rs. 25,000/-. This amount is not sufficient to run a household these days when the cost of living is sky high. This is the reason why professionals who earn more tend to hide their income so that they don’t have to pay tax.
- Price Control Policy
The prices of certain commodities such as fertilizers, sugar, cement, etc are regulated by the government by way of its Price Control Policy. The policy is rigid and does not go by the ups and downs in the market. The private manufacturers and retailers take advantage of this policy that results in black money.
- Different Excise Duty Rates
The government has set different rates for excise duty based on the quality of products. In order to avoid paying higher rate of excise duty, the manufacturers at times downgrade a product. This leads to the generation of black money.
- Real Estate Transactions
Real estate transactions involve huge amount of money. People accumulate black money via real estate transactions. Purchasing property at a cheaper rate and selling it when the prices rise has become a lucrative business and a lot of black money is generated with this.
- Quota System
The government has set a certain quota for export, import and foreign exchange. While this is set for the benefit of the people it is often misused to accumulate black money.
High inflation rate is also known to be one of the causes of black money.
Impact of Black Money
Black money does not only have a negative impact on the country’s economic condition but also has adverse social consequences. It creates economic disparity in the country which undoubtedly is the basis of social disparity. Such practices are the reason why the rich here are getting richer and the poor are getting poorer. Social inequality leads to frustration among people and gives rise to crimes such as robbery, bribery and more.
Tax evasion also means the amount that could have been used for the country’s growth and development did not reach the government. If the government does not get enough revenue it would be unable to take up new projects for the development of the country and the uplift of the poor sections.
The countries where people pay taxes religiously are far better off as compared to those where there is huge amount of accumulation of black money.
The government has taken certain steps to eradicate the issue of black money. The recent and one of the major steps taken in this direction was demonetization. While this step helped in eliminating black money to some extent many people condemned it. However, even if it helped, it definitely was not enough. A lot more needs to be done in order to stop this ill practice. The government must look for more effective measures to curb this problem. And remember, the government alone cannot bring this issue to an end. It can only be curbed if each and every citizen of the country contributes his bit.