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Which one of the following effects of creation of black money in India

June 1, 2025 by rawan239

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?

Diversion of resources to the purchase of real estate and investment in luxury housing

Investment in unproductive activities and purchase of precious stones, jewellery, gold, etc.

Large donations to political parties and growth of regionalism

Loss of revenue to the State Exchequer due to tax evasion

This question was previously asked in

UPSC IAS – 2021

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Black money refers to income that has not been declared to the tax authorities and thus is untaxed. While black money has various negative effects on the economy and society, the primary concern for the government, from a fiscal and governance perspective, is the loss of revenue. Tax evasion, which is the mechanism by which black money is generated, directly reduces the tax base and the government’s ability to collect revenue. This loss of revenue restricts the government’s capacity to fund public services, infrastructure, and welfare programs, and can lead to higher fiscal deficits or increased borrowing. Other effects like diversion of resources, unproductive investments, and funding of political activities are significant negative consequences, but the fundamental issue from the state’s perspective is the direct drain on the exchequer due to tax avoidance.

Black money is essentially untaxed income. The most direct and significant impact of untaxed income for the government is the loss of tax revenue.

Other negative effects of black money include distortion of economic data, inflation (especially asset inflation in real estate and gold), increased inequality, corruption, and reduced effectiveness of monetary policy.

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