Black Money

Mohit Arora Rohit Shori Naveen Rajan Nimisha

Defination Income, as from illegal activities, that is not reported to the government for tax purposes.

 An India is affected at every step by the black economy. The education of a child, a visit to a doctor, policeman who extort money..electricity or water departments all demands black economy

Introduction
A hidden sector of the economy where private cash transactions go unreported. It is a sector of economic activities involving illegal economic activities including buying and selling of drugs. This definition excludes transfer incomes, like capital gains and bribes. The definition also eliminates multiple counting of incomes That part of an economy that is hidden from the government and on which taxes are not paid.

 Most of the black economy is on the hand of top 3% population so that the disparity (between these people and the bottom 40 per cent) is considerably higher (five times) than what the white economy data suggests. Size of the black economy was 40 per cent in 1995-96, that implies an additional GDP due to the black economy of 40 per cent in that year.

Tax haven
A tax haven is a state or a country or territory where certain taxes are levied at a low rate or not at all. Individuals and/or corporate entities can find it attractive to move themselves to areas with reduced or nil taxation levels. This creates a situation of tax competition among governments.

Model of black money generation in legal activities

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 offbalance sheet profit. It accrues directly to the management of the business. Black Profit is generated by declaring lower revenue and/or overstating costs.

 Some of the companies have shown their entire capital as having come from the countries regarded as Tax Havens. Considering the extent of Indian monies stacked in Swiss Bank Accounts, and bank accounts of the developed countries, and comparing the same with the annual income tax collections of the Central Government, it appears that the real income admitted for taxation purposes is less than 25% .

Sources
Two Sources of Black income are a. Overstated Costs b. Under invoiced revenue Overstated costs would contribute half of the black profits from legal activities or 16 per cent of GDP.

 According to the economist magazine it is estimated that in 1998 the worlds black economy accounted for a missing $9 trillion worth of output a volume of output almost equivalent that of U.S. Black income generation process, with the most plausible available assumptions, results in overestimation of employment and wages by 5 per cent.

Amount of black money in Swiss bank:

More than 1lakh 40 thousand crore TOTAL AMOUNT HELD($ Billion) Where Russia stood 2nd and the amount of India is 4 time more than it. Russia - 470 U.K. - 390 Ukraine - 100 China 96

 It has been said that the amount from India is about 13 times larger than the countrys foreign debt. Once this huge black money comes back to India, the entire foreign debt can be repaid in 24 hours! Even after paying the entire foreign debt, we will have surplus funds that are about 12 times larger than the foreign debt.

The Indian Scenario

Swiss Bank and other undisclosed bank accounts held abroad Benami Investments Undisclosed Stock in-trade held by companies and traders Shares, Mutual Funds, etc Gold and Jewellery Holdings Investments in Real Estate

Sources of converting black money to white money

PM funds, National emergency fund, Forming educational institutions Trusts

Conclusion
It is clear that without incorporating the black economy in the analysis, there can be no clarity on the issue of unemployment in India. The 7 per cent rate of growth in the last three years raised the possibility of mobilizing more resources but the steps taken are grossly inadequate to deal with the problem of declared unemployment in India. Not that the black economy does not generate employment, but by lowering the value of the multiplier and the potential rate of growth of the economy, it lowers the employment potential