A healthy economy thrives, to a large extent, on the money that comes into the country's government account as tax revenue. Black Money refers to the income on which tax has been totally or partially evaded. The existence and floating of black money causes great losses to the country's exchequer. The following are some of the other ways in which black money can adversely impact a country's economic and social progress.
Misuse of productive resources
Black money in an economy tends to cripple the free flow of a country's resources in the right direction. It also widens the income gap. Salaried individuals, especially those in the lower end of the corporate ladder, do not see their incomes rising like those in the higher echelons as it can be safely assumed that the latter group has huge sources of unaccounted income. The vindication of this comes from news reports almost on a daily basis.
An impediment to a country's growth indicators
The presence of unaccounted money acts as a block on the right assessment of a country's progress. The assessment of a country's progress depends on the accurate calculation of the savings-to-income ratio and sector-wise composition of national income. Black money is usually parked in so-called safe tax havens overseas, which is a huge hassle for the national exchequer. This way, a country also unwittingly becomes a ‘de facto’ lender of capital to more advanced and wealthier nations.
Fosters anti-social elements
Finally, black money needs ‘muscle power’ for its protection and proliferation, as well as accounting experts and liaison officers who negotiate between black money operators and political leaders, threatening to corrupt the entire social and political fabric of a country.