BLACK MONEY & PARALLEL ECONOMY

By K.SHEKHAR

BLACK MONEY

Black money may be defined as the money that is generated by activities that are kept secret in the sense that these are not reported to the authorities. As this money is also not accounted to the fiscal authorities i.e. the taxes are not paid on this money.

White money is that money which is shown in relevant accounts and tax paid ,if due

PARALLEL ECONOMY

It connotes the functioning of an unsanctioned sector in the economy whose objectives run parallel , rather in contradiction with the aroused social objectives. This is variously termed as “black economy” , “unaccounted economy”, “illegal economy”, “unsanctioned economy” or “subterranean economy”

SOURCES OF GENERATION OF BLACK MONEY Beginning of the evil Control and licensing system Tax structure Donation to political parties Ineffective enforcement of tax

laws Generation of black money in

the public sector

IMPACT OF BLACK MONEY

1. Leads to misdirection of precious national resources

2. Worsened income distribution3. Big sized unreported segment

of the economy4. Transfer of funds from India to

foreign countries

BLACK MONEY : CANCEROUS GROWTH WITHIN GLOBAL ECONOMY

IMPACT OF BLACK MONEY (contd.)5. New black money culture in

business world6. Corruption in the society

Last but not the least…….7. Corruption of the entire political

scenario

IMPACT OF PARALLEL ECONOMY IN INDIAN CONDITIONS (facts) 2009 Indira Gandhi Institute of

Development Research (IGIDR) Indian economy grew by 5.8% Finance , insurance & real

estate expanded by 9.5% Total amount of black money in

India is Rs.3,54,000 crores Food subsidy is supposed to rise

by a mere 6.2%

Union Budget 2005-06:the Black Economy Introduction of two schemes in

Union Budget 2005- 06 – 1. Banking Transaction Tax (BTT) 2. Fringe benefit Tax (FBT) The value added tax (VAT) has

also been billed as a scheme to tackle black income generation in indirect taxes. It is supposed to lead to better compliance.

Services tax collection has shown high buoyancy. Many more services are progressively being brought under the net of this tax.

Model of Black Income Generation in Legal Activities Profit (P) = Revenue (R) – Cost (C) …(1)

Profit may be white (what is declared) or black (what is not declared). The declared profit appears in the income statement of the business and is called the balance sheet profit. The undeclared profit or black profit is called off-balance sheet profit.It accrues directly to the management of the business.

P = White Profit (Pw) + Black Profit ( Pb) …(2)

Further, P = Actual R – Actual C …(3)

Black Profit (Pb) is generated by declaring lower revenue and/ or overstating costs.

Some questions to ponder upon?? Is black economy really an evil? Is there a way to estimate and curb

the black economy? Are we as individuals also responsible

in contributing in growth of parallel / black economy

How is the government going to tackle the twin and interrelated problem of black economy and unemployment?

EXAMPLES OF PARALLEL ECONOMY Hawala kanda Film industry Illegal export and import Election polls Sports

CAN WE CHECK IT ???.....1. Setting up invigilation & business

department2. Banning unorganized banking

system3. Outwitting of shrewd beaurocrat &

businessmen by government agencies4. Public sector’s participation must be

encouraged in all sectors of economy5. Effective measures to tackle inflation

must be taken

SOME LINKS/ REFERENCES

http://www.financialexpress.com/news/story/126853/

http://in.biz.yahoo.com/050312/32/2k54q.html

www.google.com www.swissbank.ac.in www.blackeconomy.com My friends and colleagues

Money…hai to honey hai….