Thursday, August 11, 2011

Multi-facet consequences of Black Money

In this article, I have described how the black money generated in Indian economy has wide spread consequence that is endangering the very integrity of our nation. In very simple terms black money can be defined as unaccounted money which is generated though activities that are considered as illegal in the country. To get more understanding on black money, refer to the article “Money that changes colors”. Once this money is generated, it is required to be spent, otherwise, there it is of no use. People possessing enormous illegal sums can show their craziness by fitting air-conditioner in every room of their house, even their bathrooms. In this manner, black money inculcates a sense of reckless spending, since it is too much. But how this leads to moral degradation of the society is interesting to understand.

Moral degradation of the society

Black money increases the spending power of an individual. The primary needs such as food, clothing and shelter are already met for people who possess enormous amount of black money. Then these people spend money in purchasing luxurious goods such as fancy cars, jewellery, dresses, expensive trips, costly stay in 5-star hotels, etc. The blatant show off by these people for luxurious consumption creates immense stress in the minds of have-nots who want to have similar life-style. However, the Indian culture has always promoted spending for need and shun spending for desire. But the blatant exposure towards consumption based lifestyle inculcates greediness, and an appetite to earn more money by hook or by crook. The Indian society is gradually transforming to a state where moral values are sidelined whenever black money is concerned.

Economic Distortion

Black money slowly, but steadily distorts the priorities in our economic decision making process. With growing demand for luxurious commodities, the profit in the sector for these product greatly increases. The rate of return on the industries manufacturing luxurious good (such as air-conditioner, television, high end mobile phones, cars) becomes higher compared to other regular industries which serve the masses (such as agro-based industries). National priorities are subdued to serve a few big industrial houses or families. For example, plans to open shopping mall would get green signal, but plans to install fertiliser manufacturing plant would be given second hand treatment. This effect is already visible as the scarcity of agricultural inputs has increased the prices for raw materials such as seeds, fertiliser, etc. No doubt the rate of farmers suicide is increasing with the same pace as shopping malls are being opened. India which wants to become a developed nation cannot sustain this imbalance and biased decision making process where majority of its population is ignored in the light of few who possess the black money.


Many people after reading this excerpt would be surprised that high rate of inflation for the past 4-5 years is artificial and is mainly due to black money. The enormous amount of black money is used to hoard food items in cold storage. An artificial situation is created where supply of food is curtailed to increase its demand. As a basic rule of economics, whenever the demand is more than the supply for a commodity, it's price increases. The loss incurred by not selling the goods is cushioned by black money. However, the return received after the prices are increased is much more than the loss. The government claims that it does not have any magic wand to control inflation is a big myth. A simple ban on hoarding goods will drastically bring down prices in the market, but hardly any such move is taken by the government.

Angle of national security

This topic is rarely discussed in the media and people hardly understand that black money can actually push back the country seventy years back when India was ruled by Britain. But this time it will be much worse as it will be ruled by Indians but they will be serving any other nation except India. As an example, people who deposit their black money do so via Hawala agents. These agents, carrying out the risky business of money transaction from one country to another, have strong connection with intelligence of different countries. Imagine a situation in which a Hawala operator leaks multi-billion dollar of black money transaction of an Indian politician or bureaucrat to Pakistan's secret agency ISI. Although the person may not be politically dis-aligned to India, but could easily succumb to an external blackmail. In this case, the Pakistanis who were unable to defeat India in a war field could now rule Indians by proxy via the corrupt official who will become a puppet in their hands.

The above ideas are obtained from the lecture by Subhramanian Swamy. Start at 7:00

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