Black money (or parallel economy) is like black dot on the India economy.
It leads to huge of loss of revenue to the country exchequer which would have brought investment in the economy. This black money come into existence largely through tax-evasion. Due to less revenue collection the government imposes more taxes and at higher rates. This eventually gives rise to a regressive tax structure.
Existence of Black money in an economy leads to Socio-economic disparity, creating huge gap between rich poor. It leads to production of the goods for elite class at the cost of investment in expected or necessary areas.
Large circulation of black money in the market in various forms promotes inflation in the economy.
It sometimes violates foreign exchange regulation which leads to transfer of this money to foreign land.
It also leads to corruption of administrative and political systems. This further breed’s corruption thus vicious circle of corruption becomes ready.
This affects the overall the economic development process.