1.0 INTRODUCTION

To start with, there are two ways of earning money, one is with legal ways and other through illegal ways. Money earned through legal way is called white money while money earned through illegal way is called black money. We have to pay taxes to the government for all the money we earn. The money on which we pay tax, we refer it as white money and the money which we hide from the government is referred as black money. Black money is cancer to the economic growth of nation .Illiteracy, poverty, disproportionate religious belief are the key factors from which India acquired this abridge economy. Since 1991, India adopted liberal and democratic ways to ensure its economic growth. With the help of this, it was able to revolutionize itself from a rustic to an industry based economy. Regardless of this achievement, it became the one of the top countries having black money.

DEFINITION

Black money is defined as follows:

“Unaccounted-for and untaxed cash generated by dealings in a black economy, black market or organized crime.” (Karhad, 2012).

It may be also defined as:

“Income from illegal activities that is not reported to the government for tax purposes”. (Karhad, 2012)

2.0 What the statistics say:

Indian funds account to 0.14 percent of wealth deposited in foreign banks. It ranks 55th globally( www.thehindu.com/business/Economy/article3539521.ece)

Till 2011, the total value of currency in Swiss bank was 1.53 trillion Swiss francs , From which 2.18 billion Swiss francs (Rs. 12,700 Crore) belonged to Indian individuals( www.thehindu.com/business/Economy/article3539521.ece)

Most of the money belonged to fiduciaries. Fiduciaries are basically wealth fund managers who manage the money of Indian individuals through numbered accounts. ( www.thehindu.com/business/Economy/article3539521.ece)

Indian funds in Swiss banks rose to Rs.3500 Crore last year.( www.thehindu.com/business/Economy/article3539521.ece)

3.0 How is black money made?

It is elementary to know how black money is made, to perceive its affects on the economy.

Money laundering, anti-social activities, tax quibble, unrecorded income and taking advantage of liberal and democratic system of the government, are the main reasons which leads to its creation. Flexibility due to opening up of economy has lead to transfer of money among different borders. “Hawala” is on of the method used for transferring of money. It accounts for 75% of the black money generated in India. Another method is to deposit this money in foreign banks. It adversely affects the value of rupee as compared to other foreign currencies.

4.0 What lead to its creation?

4.1 Dominance of privilege system

Due to presence of various quotas and licenses, the black money in India keeps on increasing.

4.2 Incompetent administration of tax legislation

The tax legislation of India which includes tax duty, stamp duty is substantially weak.

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4.3 Allowance from political parties

Big political parties have a liability to support anti-social activities through black money. Huge corporate societies are providing ruling political parties with sole intention to make profit (Lekhi, 2003, 193).

4.4 Repercussion of Second World War

Many Indian industries got involved in money laundering during the era of Second World War. Black money was being generated through transfer of illegal goods and basic supplies.

4.5 Agronomical Income

One of the factors in adding up to black money was the unwillingness to add tax on agricultural earnings. Big corporate houses have started investing in farming and agricultural activities to earn money as government don’t have any tax on agriculture.

4.6 Privatization

With many sectors being privatized , government as well private sector gets a chance to launder money, manipulate the data. Most of black money scams which emerged in India were all due to private sector involvement .