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The economic impact of corruption is a powerful one. The circulation of black money has adversely affected the Indian economy in several ways.

  • In India, the black economy has resulted in an immense loss of tax revenue. If it accounted for 40% of GDP in 1998-99,  the  loss of direct tax revenue at the prevailing rate would amount to at least Rs. 200,000 crore, or 47.5 billion U.S. Dollars (Kumar 1999). According to the BBC (2004), only 2 million of India’s billion people pay taxes, just 2% of the population. The government therefore suffers a perennial shortage of funds and public services   languish.
  • Because of the growing black economy, policies fail both at the macro-level and the micro-level. Planning or monetary policy or fiscal policies do not achieve the desired results because of the existence of a substantial black economy. Targets for education, health, drinking water and so on are not achieved because “expenditures do not mean outcomes.” The economy does not lack resources but faces resource shortage. Much investment goes into wasteful  and  unproductive  channels,  like holding gold or real estate abroad. The flight of capital lowers the employment potential and  the level of output in the economy.
  • Capital sent abroad does not generate output in India but does so where it goes. A country that is considered capital-short has been exporting capital. A nation that gives concessions to multinational corporations to bring in capital loses more capital than it gets, and that too at     a high cost, from foreign institutional investments or foreign direct investment. India’s policies are open to the dictates of international capital because the country’s businessmen and politicians have taken capital out in large doses since  Independence.  The  costs  are huge.
  • The direct and indirect costs are of policy failures, unproductive investments, slower development, higher inequity, environmental destruction and a lower rate of growth of the economy than would have been possible. It has enormously worsened the income-distribution, and has thereby undermined the fabric of the fixed income salary class finds itself ever be the lower  rung  of  the income-ladder.
  • The inflation rises while the black money circulates in the market. The price of eatable/ others goods are increased to supply of that black money and  less  production  of  things in the market. So people which have that money they offer more price  in  the  market. As compared from other person in the market.
  • At the social level, the cost is a loss of faith  in society and its functioning. At the political level there is fragmentation, with States demanding their own packages because the belief that the nation as a  whole  can  deliver has been dented. The demand for smaller States is a corollary because the bigger States neglect the less vocal regions. Each caste, community and region now wants to have its own party to represent its narrow interest, leading to the proliferation  of  smaller parties.
  • In the absence of Black Money India could have been growing faster, by about 5 per cent, since the 1970s if it did not have the black economy. Consequently, India could have been an $8-trillion economy, the second largest  in  the world. Per capita income could have been seven times larger; India would then have been a middle-income country and not one of the poorest.

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