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Tuesday, 29 July 2014

Current Affairs: Present Hot Topic Black Money in India

by Unknown  |  in Current Affairs at  Tuesday, July 29, 2014

Current Affairs: Present Hot Topic Black Money in India

Black Money in India:

Black Money means parallel economy functioning of unsanctioned sector in the economy, whose objectives run parallel, rather in contradiction with the avowed social objectives. This is variously referred to as "Black Economy", unaccounted economy, illegal economy subterranean economy, or unsanctioned economy. The term "parallel economy", emphasises a conformation between the objectives of the legitimate and illegitimate sectors. For instance, in the broad long term objectives of planning to establish a socialist pattern of society, we include full employment, removal of disparities of income and wealth, avoidance of conspicuous consumption so that more resources are available for a larger volume of saving, the removal of poverty, the attainment of self reliance and provision of equality of opportunity.

     The emergence of the black money in economy started during the Second World War but this was a phenomenon which was expected to end after the Second World War. However with the expansion of economic activity in the post-independence  period, the magnitude of the black sector has growth and proliferated to such an extent that it begun to play a dominant role in moulding state policies, on changing the structure and composition of output in prompting a class which derives its maximum sources of power from black money. In the connection with, D.K. Rangnekar rightly mentions if the "parallel economy" poses a serious threat to stability and growth of the official economy, surely it seems from the fact that the magnitude of "Black Money" is large and rigged deals are growing in volume and completely at an alarming rate.

Estimation of Black Money in India:

The Ministry of Finance had recommended that Government should attempt an estimate of black money on as much as possible. Such estimate will enable the Government to formulate more appropriate policies. Thereafter, the study of the estimate of the extent of unaccounted income in the country was entrusted to the National Institute of Public Finance and policy in July 1982 and terms of reference were as under.
  • To identify the important sectors of the economy in which black money is generated.
  • To esamine the cause and conditions that give rise to and or facilitate the generation of black money.
  • To study the methods employed to generate black money and the channels through which the concealed income is invested and spent in other ways.
  • The methods employed to convert black money into white money.
  • To attempt a broad estimation of the volume of black money generated.
  • To undertake any regional or sectoral surveys that may be required in connection with the above.
The Institute submitted its report in March 1985 and the salient points of the report are as under.

(I) Primary: The report makes a distinction between black income and black wealth, the former representing a flow concept, ie., something which accrues over a period of time and is, therefore measured as so much per unit of time and the latter a stock concept, ie., something which has a physical existence and is therefore measurable at any given point of time. According to the report, black money is black wealth held in the form of currency and liquid bank deposits.

(II) Estimate of Black Money: Black Money is defined as the aggregate of income which are taxable but are not reported to tax authority.

     Dr. Maledom S.Adisesulah, a renowned economist, has estimated black money to be about Rs. 59,000 crores i.e. about 40 percent of GNP.

     IMF staff survey on the unaccounted sector of the economy has estimated black money in Inida at 50 percent of GNP which was Rs. 1,45,141 crores in 1982-83 at current price. On this assumption India's unaccounted sector is of the order of Rs. 90,000 crores.

(III) Causes of Black Money: There are several factor responsible for the generation of black money. The principle factors are:
  • Present Structure of Taxation: The study suggests that increase in the tax ratio in the economy-comprising of taxes levied by the Central and State Government, direct and indirect had been associated with increased tax evasion.
  • Economic Controls: The range f complexity of control over economic activity in India according to the reports is awesome and leads to direction of tax evaded, income.
  • Heavy increases in Government and public sector spending in recent years continued with the growth of political funding is seen as another significant factor behind the growth of black money.
  • Inflation, enhances the incentives and opportunities for making black money.
  • Ineffective Enforcement of Tax Laws: "Whereas the government has an armoury of tax laws pertaining to income tax, sales tax, stamp duties, excise duty etc. their enforcement is very weak due to widespread corruption in these departments.
  • Generation of black money in the public sector.
  • Ceiling on depreciation and other business expenses.
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