Civil Services Prep

Prelims 2021 · Economy · Question 9

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?

  1. Diversion of resources to the purchase of real estate and investment in luxury housing
  2. Investment in unproductive activities and purchase of precious stones, jewellery, gold, etc.
  3. Large donations to political parties and growth of regionalism
  4. Loss of revenue to the State Exchequer due to tax evasion

Answer

Loss of revenue to the State Exchequer due to tax evasion

  • (a) Black money does flow into real estate and luxury housing, distorting asset prices. But this is a consequence, not the Government’s main concern.
  • (b) It is also invested in gold, jewellery and other unproductive assets. This hurts productive capital formation, but it is not the primary worry.
  • (c) Black money can influence politics through donations, but "growth of regionalism" is not a standard direct effect of black money. Hence this is not the best answer.
  • (d) The biggest concern for the Government is tax evasion leading to loss of revenue to the State Exchequer. This directly weakens public finance and is the principal official worry.

Correct answer: (d)

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