Project Report
Topic: Black Money – A Challenge to the Indian Economy
Name: Kumar H.R
Class: 2nd PUC
Subject: Economics
Submitted to: Ramesh T.H
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Index
Sl. No. Content
1 Introduction
2 Meaning of Black Money
3 Historical Background
4 Sources of Black Money
5 Effects on Indian Economy
6 Government Measures
7 Challenges in Controlling Black Money
8 Suggestions / Way Forward
9 Case Studies / Examples
10 Conclusion
11 Bibliography
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1. Introduction
Black money is unaccounted wealth hidden from the government to avoid taxes. It creates a
parallel economy, reduces government revenue, and promotes corruption.
Impact on Economy:
Reduces funds for essential public services like health, education, and infrastructure.
Discourages foreign investment and economic growth.
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Statistics:
According to some estimates, India’s black money could range from ¹10–30 lakh crore.
The real estate sector alone contributes a huge share of black money, mostly through cash
transactions.
Importance:
Controlling black money strengthens governance.
Promotes financial transparency.
Reduces corruption and inequality.
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2. Meaning of Black Money
Black money refers to:
1. Legally earned but unreported income: Businesses or individuals hide income from taxation.
2. Illegally earned income: Money obtained from bribery, corruption, smuggling, or illegal
activities.
Effects on economy:
Creates a shadow economy.
Reduces government revenue for development projects.
Weakens financial institutions.
Example: Undisclosed income from real estate or gold purchases.
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3. Historical Background
Pre-Independence: Tax evasion was common under British rule, and corruption existed in
trade and administration.
Post-Independence: Black money grew due to complex tax systems, weak enforcement, and
cash-dominated economy.
Major Government Efforts:
Income Declaration Scheme (IDS, 1997 & 2016): Allowed citizens to declare hidden income by
paying penalty.
Demonetization (2016): High-value currency withdrawn to curb black money.
Goods and Services Tax (GST, 2017): Unified taxation system to reduce evasion.
Note: Despite measures, a large portion of black money still exists due to underground
banking and offshore accounts.
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4. Sources of Black Money
5. Tax Evasion: Businesses underreport income; individuals hide property or professional
income.
6. Corruption & Bribery: Illegal payments to government officials, politicians, or public
servants.
7. Real Estate: Cash transactions, undervaluation of properties, benami properties.
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8. Hawala & Illegal Transfers: Informal channels to move money abroad.
9. Criminal Activities: Smuggling, gambling, drugs, counterfeit currency.
10. Shell Companies: Fake companies used to hide wealth.
Additional Notes:
Real estate, gold, and luxury goods are major black money sinks.
Political funding is often a source of unaccounted money.
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5. Effects on Indian Economy
Loss of Government Revenue: Funds lost for social welfare, healthcare, and infrastructure.
Parallel Economy Growth: Unregulated cash circulates outside government monitoring.
Inflation & Asset Price Rise: Real estate, gold, and luxury goods become more expensive.
Income Inequality: Rich avoid taxes; middle and lower classes pay more.
Capital Flight: Money moved abroad reduces domestic investment.
Weak Financial Institutions: Undermines banking system and economic policies.
National Security Threat: Illegally earned money may fund terrorism or criminal activities.
Examples & Statistics:
Post-demonetization 2016, digital transactions increased by 70%, indicating cash dominance
in black money.
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Real estate accounts for over 50% of total black money in India.
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6. Government Measures
7. Demonetization (2016): Withdrawal of ¹500 and ¹1000 notes to reduce cash-based black
money.
8. GST (2017): Unified taxation system reduces evasion.
9. Benami Transactions Act: Seize properties held in false names.
10. Income Disclosure Schemes: Declare undisclosed wealth by paying penalty.
11. Digital Payments & UPI: Encourages cashless economy.
12. International Cooperation: Agreements with Switzerland, Mauritius, Singapore to trace
hidden money.
Additional Measures:
Strengthening Income Tax and Enforcement Directorate departments.
Promotion of digital invoices and e-way bills to reduce under-reporting.
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7. Challenges in Controlling Black Money
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Complex tax system with loopholes.
Political funding with unaccounted cash.
Offshore accounts and tax havens.
Cultural preference for cash transactions in business and real estate.
Weak enforcement and corruption in government agencies.
Lack of global cooperation in some cases.
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8. Suggestions / Way Forward
Simplify tax structure to encourage compliance.
Promote transparency in political funding.
Strengthen ED, IT Department, and CBI to detect black money.
Promote digital payments and cashless economy.
Educate public on negative effects of black money.
Encourage international cooperation to track funds abroad.
Protect and incentivize whistleblowers.
Optional: Introduce stricter penalties for repeated offenders and encourage voluntary
compliance through rewards.
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9. Case Studies / Examples
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10. Demonetization 2016: Boosted digital payments; 99% currency returned to banks.
11. 2G Spectrum Scam: Showed black money in telecom sector corruption.
12. Real Estate Sector: Cash deals and undervaluation hide significant wealth.
13. International Examples: Swiss accounts, Mauritius corporate route.
14. Political Funding: Use of unaccounted cash in elections.
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10. Conclusion
Black money is a major challenge to India’s economy. It reduces government revenue,
encourages corruption, increases inequality, and destabilizes financial systems. Strong
reforms, digitalization, transparency, and active public participation are crucial to control it.
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11. Bibliography
12. Economic Survey of India, Government of India
13. Reserve Bank of India Reports
14. The Hindu, Economic Times, Business Standard
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15. Books and research papers on Indian economy and corruption
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