Short Essay Black Money India

We hear news about Black Money in Indian economy very often these days. But what exactly is Black money? What makes money black or white? This short analysis is a humble attempt to cover essentials one should know about the black money issue in India.

Definition of Black Money:

It is to be noted here that there is no clear cut definition for black money in either economic or sociological concepts. In very simple terms we can say any money which is not accounted as one or another form of black money.

Black money is often money illegally obtained or transacted. As being unaccounted money, black money is not declared for tax purposes. Black money is also hidden from the government authorities which calculates national income like GDP, GNP etc.

Black money is not fake notes!

It has not be understood that fake notes are not synonymous to black money. Counterfeiting is about printing new money by unauthorized agents. Black money is not about printing new money, but is more related to tax evasion.

Ideal economy – accounted and legitimate transactions

Ideally all transactions where money change hands should be accounted. This helps the government to collect taxes.

But if money change hands without proper accounting (Eg: cash transactions), government may fail to notice even the presence of such money in the economy. Besides, there are many economic transactions in the countries which are by the nature itself illegal (Eg: Smuggling). These transactions can by now means taxed. All these unaccounted money can be classified under the umbrella term – black money.

Cash transactions can be black money!

You may wonder; but if cash change hands without proper transaction accounting, the money involved is black money!

How is black money generated in an economy?

  1. Illegitimate Activities: Money is generated through illegitimate activities like trafficking, robbery, smuggling, terrorism, money laundering, corruption etc.
  2. Tax Evasion: People either fail to report their tax to the authorities by virtue of ignorance or intentionally to avoid paying tax which is otherwise termed as tax evasion.
  3. Tax Avoidance: The third scenario is about taking advantage of the legal system in a country, where individuals and companies avoid paying tax – which is called as tax avoidance.

Black money generation – day to day examples

Some very common forms of this menace may include:

  • Sellers who don’t give bills for sales creates a form of black money.
  • In the land registration process and in other reality sector business, people tend to undervalue their costs (sssets) so as to reduce the tax and registration fees to be paid.
  • People investing in jewelry and bullion so as to to hide their actual income. Money is also hidden in places like bank lockers and underground tunnels.
  • Nonprofit organizations, trusts, financial markets etc are often pointed for their involvement in black money.
  • Tax heavens, round tripping, transfer pricing, hawala transactions, treaty shopping etc. (to be dealt in detail later.)
  • Participatory Notes otherwise called P – Notes are another source of black money.
  • Till recently bitcoins were also considered to be a source of funding of black money as it provides a safe platform for investors with handsome returns from its value appreciation.

The black money problem in India

The problem of black money in India started popping up by 1960’s. This is mainly attributed due to the high level of income tax and corporate tax charged then. This resulted in huge tax evasion by individuals and business communities. Now, after liberalization in 1991, the black money issue has compounded.

Estimates of Black Money in India

As black money is not accounted it is not easy to estimate it either. Different reports suggests different estimates. Some estimates are as below:

  • A former CBI Director of India has said that the total black money in India is around 500 billion US dollars.
  • Global Financial Integrity Report has mentioned that India lost around 120 billion US Dollars in the time frame of 2001-2010. It ranked India in 8th spot in black money generation.
  • Indians’ share in tax-havens across the world is estimated at $152-181 billion (Rs. 10 lakh crore), by one calculation of Bank of Italy. Note – 6-7 trillion dollars worth of black wealth lies hidden in tax havens across the world, according the senior economists from the Bank of Italy.

Indian Black Money – Abroad or in India itself?

There are many experts who consider that 90 percent of India’s black money stays in India itself. Some value it around 70 lack crore. This is because funds transferred to foreign banks fetch very little or no bank interest. But at the same time, the booming Indian economy offers large scope for investment.

According to one study, out of 100 rupees of black money generated in our country, 90 percent stays in India. The balance 10 percent is takes the form of round tripping and transfer pricing; while a little portion is consumed abroad itself.

Can black money be made white money?

Recipients of black money must hide it, spend it only in the underground economy, or attempt to give it the appearance of legitimacy through money laundering. Money laundering is the process by which black money is converted to white money. One of the practice involved in money laundering is round-tripping, where tax-evaded money comes back to the same country as foreign investment.

Effects of Black Money

The after effects of black money in our economy is manifold and have serious consequences. Some of the negative impacts are listed below.

  • It affects the financial system of the country. RBI may not be able to control the money supply in the economy and thereby leading to higher inflation in the system. The persistent level of high inflation is detrimental to the economy as it will erode the value of money and eats up investments and savings.
  • It will affect the credibility of our country.
  • The money generated in the form of black money is often routed for terrorism and hence, it becomes an issue of national security.
  • A parallel economy will be created in the country and hence, governance will be ineffective to a large extent. We have the examples like Mexico where a parallel economy is rampant due to illegal drug trafficking.
  • There is a huge loss of money for government exchequer because of tax loss for the country
  • Real estate prices may shoot up. This may result in asset bubble which is detrimental to an economy.

Steps to curb black money: Some recent developments

Different steps has been formulated to curb the menace of black money in India. There were co-ordinated efforts from the part of government, RBI, and Supreme court. Steps taken include:

  • Formation of Special Investigation Team (SIT) by SC during the UPA government tenure while considering a case filed by former Law Minister Shri. Ram Jetmalani.
  • The government passed The Undisclosed Foreign Income and Assets (Imposition of Tax) Bill, 2015
  • RBI initiated the process of taking back the currency notes issued before 2005 to reduce the level of counterfeit notes and also to curb the menace of black money to a greater extent.
  • The government is mulling for a dual strategy in the form of framing policies to bring back the illicit money stashed abroad and also making domestic laws stringent to locate and identify the black money in India.
  • Tax reforms in the form of tax deduction at source (TDS) , increasing tax base than merely increasing tax rates, voluntary disclosure schemes etc.
  • Government and RBI are promoting the cashless economy. The government has either slashed taxes or surcharge on online / card transactions to make transfers accountable and try to bring the money into the normal banking system.
  • Government has scrapped Rs.500 and Rs.1000 notes and changed the cash withdrawal limits from banks and ATMs.
  • India joined FATF ( Financial action Task forece) in 2005 to combat against financing terrorism through the black money route. We also framed AML / PML laws in 2003 for combating money laundering activities in our country.
  • Prevention of Corruption Act and Binami Transactions Act were other such steps in the right direction.
  • Under pressure from India and other countries Switzerland and other tax havens have agreed in principle to share the details of accounts to the public authorities on a case to case basis.
  • Making PAN number mandatory for real estate and bullion purchases.
  • The government is in a process of renegotiating DTAAs with countries which we have already signed.
  • Limitation of benefits clause needs to be invoked in appropriate areas where it deemed necessary.
  • 2015 HSBC leak.
  • 2016 Panama Papers leak.


It is to be noted here that though we have formulated different strategies and policies to combat black money, its effect is not reflected in implementation. The need of the hour is greater political will and global coordination to counter the issue.

Article by Sandeep A

Black money is basically the accumulation of income obtained illegally. It is not declared for tax purpose. The issue of black money is prevalent in India and the government has come up with stern measures to deal with it lately.

The money earned via unlawful means is known as black money. There are various sources of generating black money and people have been practicing these since decades despite the negative impact they have on the society. Here are essays on Black Money of varying lengths to help you with the topic in your exam, class tests or competitions.

Essay on Black Money

Black Money Essay – 1 (200 words)

The problem of black money is not new to our country. Money generated via various illegal sources and the attempt to hide it from the government for the purpose of tax evasion has been a common practice here.

The problem of black money has given rise to a number of other issues in India. False information about the country’s economy is among the major issues being faced due to black money. The government is completely dependent on the tax revenue and evasion of tax to accumulate black money has a major impact on the nation’s fiscal system. Apart from the impact it has on the nation as a whole this also impacts the general public as it is the basis of social and economic disparity in the country.

There are a number of causes of accumulation of black money. The high tax rate set by the government is said to be the main reason for it. Other reasons include the different rates set for excise duty, the price control policy, the real estate market, inflation and quota system. People look for various ways to hide their income from the government and get away with it.

The need to stop this practice must be sensitized. While the government is taking steps to eliminate this problem it cannot achieve success in this direction if the public doesn’t support.


Black Money Essay – 2 (300 words)

Black money is basically the money earned in black market. It is the amount which is hidden from the government so as to avoid taxation on the same. The accumulation of black money has several negative repercussions on the society with economic and social disparity being the major ones.

Sources of Black Money

Now the question remains that when there are so many negative impacts of black money then why isn’t the government taking steps to eradicate the problem? Well, the government is making efforts to free the country of black money however the sources of this ill practice are stronger than the policies imposed to get rid of it.

It goes without saying that evasion of different types of taxes including the income tax, state taxes, corporation tax, excise duty and customs duty is the key to generating black money. Here is a look at the various other sources of black money:

  1. Black income via exports: A lot of black money is generated by businesses that export their goods.
  2. Black market: The good supplied in the black market are another source of black money.
  3. Stock Market: A lot of profit is generated via the stock market trade and most of it goes unaccounted. It is this unaccounted profit that makes for the accumulation of black money.
  4. Illegal commissions: Many government officials take illegal commissions from the general public for offering certain services. The income earned via this means is all black.
  5. Bribes: A lot of bribery goes on at different levels in the government as well as private sector and this also contributes to black money.
  6. Scams: Scams done by politicians and other people in power are undoubtedly a major source of black money.


The problem of black money has persisted in our society since decades. It is high time the government should come up with a foolproof plan to free the country from the clutches of this ill practice.

Black Money Essay – 3 (400 words)

Black Money is one of the major problems being face by our country these days. This is one of the reasons behind the economic disparity that in turn causes social inequality which is the root cause of several problems in the country. There are a number of factors that lead to this problem. Some of these include the high rate of tax, increased cost of living, inflation, different rates of excise duty and the real estate market.

Ways to Control the Problem of Black Money

It is important to control the problem of black money as it is hampering the growth and development of the country to a large extent. Here are some of the ways in which we can control this issue:

  • The tax system should be realistic. People must not see it as a burden. High tax rate would only make people look for ways for tax evasion.
  • The process of tax collection must be made more efficient. The government must take certain steps to award the officials who are dedicated and sincere towards this task so as to motivate more and more officials to take this seriously.
  • The government must work on its price control policy as it is also one of the reasons behind the generation and accumulation of black money.
  • The public sector projects must be monitored stringently so as to bring down their expenditure.
  • The private sector investment expenditures must also be monitored effectively.
  • The government must take action against the corrupt officials who in many ways contribute to the growth of black money.
  • Administrative corruption must be controlled at various levels.
  • The sale and purchase of properties must be thoroughly monitored by the IT officials to ensure that people do not hide any black money in the event.
  • The politicians, celebrities, senior civil servants and media people must set an example for the general public to pay their taxes.
  • Incentives should be given to those who provide voluntary disclosures of income.
  • The exchange rates must be realistic and should reflect our comparative rates and position in the world economy.


While the Modi government has taken the step of demonitization to break this illegal wealth accumulation, there is still a lot that needs to be done in order to bring this problem down. People must understand the importance of paying the tax and should refrain from concentrating black money. The small contribution each citizen does in the form of taxes helps in the development of the country.

Black Money Essay – 4 (500 words)

Black money is the money on which tax is not paid. It is hidden from the government just to keep it exempted from tax. There are a number of means used by people to keep their money under wraps and escape from paying the tax. Here is a look at some of these and also the way government has tried to curb this problem in the recent past.

Black Money Deposited in Foreign Lands

Many big business men, ministers and celebrities are known to have deposited their money in foreign banks. Though the total amount deposited by Indians in foreign bank is not known, there are many reports claiming estimate amount of money deposited by Indians in their foreign accounts. As per one of these reports a whopping US$1.06 trillion has been held in Switzerland while another report claims that Swizz bank accounts of Indians includes around US$2 billion. It has also been claimed that illegal funds of Indians in foreign tax havens amount to around US$ 500 billion.

Demonetization – A Step to Eradicate Black Money

Recently, the Modi government took a major step to eradicate the problem of black money. On the 8th of November 2016, Narendra Modi announced that 500 and 1000 rupee notes would cease to be legal from midnight. ATMs all across the country were closed on 9th and 10th of November. These were refilled with 2000 rupee notes and new version of 500 rupee notes. The old notes were removed completely from circulation. As per the government this action would bring down the accumulation of black money and bring down the illegal businesses and activities that are funded by the same.

The sudden announcement of the withdrawl of old currency notes and the shortage of new notes created havoc in the country and disrupted the normal functioning across of various sectors for several weeks. The decision had mixed reactions from the public. The decision was condemned by many stating that it has only caused inconvenience to the general public. It has been criticized for being poorly planned. Public came out to protest against the government in various parts of the country.

However, the government claimed that the move is aimed at improving the overall condition of the society and people will see the positive results in the long term.

Impact of Demonetization

While the move was condemned and criticized by many here is a look at the positive impacts of demonetization:

  • Black money was majorly destroyed due to this move of the Modi government.
  • It came as a shock for the political parties and ministers who used black money for campaigning and other activities. It disrupted the ill practices used by these parties to win votes.
  • The amount of black money floating in the real estate sector saw a huge dip.
  • Hawala transactions that promote terror activities came to a halt.
  • It has also impacted Maoists and their movements negatively.


The issue of black money has been eating the country like a parasite. While demonetization has helped in controlling it to some extent there is still a lot that government should do to get rid of this issue.


Black Money Essay – 5 (600 words)

People earn money from different sources and do not bring it to notice so that they can refrain from paying tax. This accumulation of money on which tax is not paid is known as black money. The problem of black money has been prevalent in our country since long. There are a number of factors that contribute to this problem.

Causes of Black Money

Here is a look at the various causes that lead to the problem of black money in India:

  1. High Tax Rate

The rate of tax in India is quite high. The increase in the taxes and duties has forced people to take the route to illegal wealth accumulation. Tax free income limit in the country is just Rs. 25,000/-. This amount is not sufficient to run a household these days when the cost of living is sky high. This is the reason why professionals who earn more tend to hide their income so that they don’t have to pay tax.

  1. Price Control Policy

The prices of certain commodities such as fertilizers, sugar, cement, etc are regulated by the government by way of its Price Control Policy. The policy is rigid and does not go by the ups and downs in the market. The private manufacturers and retailers take advantage of this policy that results in black money.

  1. Different Excise Duty Rates

The government has set different rates for excise duty based on the quality of products. In order to avoid paying higher rate of excise duty, the manufacturers at times downgrade a product. This leads to the generation of black money.

  1. Real Estate Transactions

Real estate transactions involve huge amount of money. People accumulate black money via real estate transactions. Purchasing property at a cheaper rate and selling it when the prices rise has become a lucrative business and a lot of black money is generated with this.

  1. Quota System

The government has set a certain quota for export, import and foreign exchange. While this is set for the benefit of the people it is often misused to accumulate black money.

  1. Inflation

High inflation rate is also known to be one of the causes of black money.

Impact of Black Money

Black money does not only have a negative impact on the country’s economic condition but also has adverse social consequences. It creates economic disparity in the country which undoubtedly is the basis of social disparity. Such practices are the reason why the rich here are getting richer and the poor are getting poorer. Social inequality leads to frustration among people and gives rise to crimes such as robbery, bribery and more.

Tax evasion also means the amount that could have been used for the country’s growth and development did not reach the government. If the government does not get enough revenue it would be unable to take up new projects for the development of the country and the uplift of the poor sections.

The countries where people pay taxes religiously are far better off as compared to those where there is huge amount of accumulation of black money.


The government has taken certain steps to eradicate the issue of black money. The recent and one of the major steps taken in this direction was demonetization. While this step helped in eliminating black money to some extent many people condemned it. However, even if it helped, it definitely was not enough. A lot more needs to be done in order to stop this ill practice. The government must look for more effective measures to curb this problem. And remember, the government alone cannot bring this issue to an end. It can only be curbed if each and every citizen of the country contributes his bit.

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