📘 Q.8 IAS Prelims 2021— Economics (Black Money)
🧷 Authentic Classroom Explanation | IAS Monk
📌 Which one of the following effects of creation of black money in India has been the main cause of worry to the Government of India?
(a) Diversion of resources to the purchase of real estate and investment in luxury housing
(b) Investment in unproductive activities and purchase of precious stones, jewellery, gold, etc.
(c) Large donations to political parties and growth of regionalism
(d) Loss of revenue to the State Exchequer due to tax evasion
📌 Answer: (d)
🧠 Classroom Explanation
🔹 Core Concept: What is Black Money?
Black money broadly refers to income or wealth not reported to tax authorities, arising from:
- Illegal activities (crime, corruption, smuggling), and
- Legal activities but concealed income (under-reporting, cash transactions, shell companies).
The common thread is tax evasion.
🔍 Why option (d) is the main concern
✅ Loss of revenue to the State Exchequer — Correct
The primary and most serious impact of black money is:
- Erosion of government revenue,
- Reduced capacity to fund public goods like health, education, infrastructure, and welfare,
- Increased fiscal deficit, forcing higher borrowing or higher taxes on compliant taxpayers.
This directly weakens state capacity and economic governance, which is why it remains the central worry of the Government of India.
❌ Why other options are not the main concern
- (a) & (b):
These are uses or channels of parking black money (real estate, gold, luxury assets), not the fundamental macroeconomic damage. - (c):
Political funding distortions are serious, but they are secondary consequences, not the core economic harm.
📌 In policy terms, tax evasion and revenue loss is the root from which other distortions grow.
🧾 Policy Response Snapshot
To address this core concern, India has enacted:
- Black Money (Undisclosed Foreign Income & Assets) Act, 2015
- Benami Transactions (Prohibition) Amendment Act
- Fugitive Economic Offenders Act
- GST, PAN–Aadhaar linkage, cash transaction limits, and digitisation
All are aimed at plugging revenue leakage.
🔍 Curiosity Raiser
Why does excessive black money ultimately increase the tax burden on honest taxpayers?
🧘 IAS Monk Whisper
Black money does not merely hide wealth;
it hollows the State from within,
starving schools, roads, and justice itself.