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Q39 (IAS/2021) Economy › Government Finance & Budget › Taxation principles Official Key

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?

Result
Your answer: —  ·  Correct: D
Explanation

The correct answer is Option 4. While all listed options represent negative consequences of black money, the primary concern for the Government of India from a fiscal and governance perspective is the loss of revenue to the State Exchequer due to tax evasion.

  • Fiscal Impact: Tax evasion directly reduces the government's tax-to-GDP ratio, limiting its capacity to fund essential social infrastructure, welfare schemes, and developmental projects.
  • Macroeconomic Instability: A shrinking revenue base leads to higher fiscal deficits, forcing the government to either increase public debt or impose higher tax burdens on honest taxpayers.
  • Why others are secondary: Options 1, 2, and 3 describe the utilization of black money (real estate, luxury goods, or political funding). While these distort resource allocation and affect political integrity, they are symptomatic. The fundamental cause of worry is the leakage of potential public funds that hinders sovereign economic planning and distributive justice.
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Don’t just practise – reverse-engineer the question. This panel shows where this PYQ came from (books / web), how the examiner broke it into hidden statements, and which nearby micro-concepts you were supposed to learn from it. Treat it like an autopsy of the question: what might have triggered it, which exact lines in the book matter, and what linked ideas you should carry forward to future questions.
Q. 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? [A] …
At a glance
Origin: Books + Current Affairs Fairness: Moderate fairness Books / CA: 5/10 · 2.5/10
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This is a classic 'Most Appropriate Option' question where all choices are correct effects, but only one represents the sovereign's primary injury. The answer lies in fundamental NCERT Macroeconomics logic (Fiscal Health) rather than niche current affairs. Don't get distracted by the symptoms (Real Estate/Gold); focus on the root fiscal damage.

How this question is built

This question can be broken into the following sub-statements. Tap a statement sentence to jump into its detailed analysis.

Statement 1
Has the diversion of resources to the purchase of real estate and investment in luxury housing been the main cause of concern for the Government of India regarding the creation of black money in India?
Origin: Direct from books Fairness: Straightforward Book-answerable
From standard books
Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM. > Chapter 39: After Nehru... > First Steps towards Liberalising the Economy > p. 726
Presence: 5/5
“Real estate became a potent source of corruption and unaccounted money with the politicians. However, by the end of his term as prime minister, Rajiv Gandhi, faced with several problems in the country, went back to populism. Taxes were increased on consumer durables and air travel made more expensive. In April 1989, the National Rural Employment Programme (NREP) and the”
Why this source?
  • Explicitly identifies real estate as a potent source of corruption and unaccounted money.
  • Links political actors to the use of real estate for storing unaccounted wealth, implying major concern.
Rajiv Ahir. A Brief History of Modern India (2019 ed.). SPECTRUM. > Chapter 39: After Nehru... > Disbanding Planning Commission and Setting up NITI Aayog > p. 783
Presence: 5/5
“of 2016 tightened the law in the use of unaccounted, taxevaded money for what is known as 'benami' transactions through the purchase of property. Under the amended law, authorities were empowered to provisionally attach and eventually confiscate benami properties. Jail terms of between one and seven years and a fine are prescribed for offenders. The Real Estate (Regulation and Development) Act of 2016 was another policy initiative of the NDA government. As per the law, a regulator–the Real Estate Regulatory Authority (RERA)–was to be established in every state to oversee the sector and "protect the interest of consumers in the real estate sector" through an adjudicating mechanism and appellate tribunal.”
Why this source?
  • Describes 2016 legal tightening on benami property to curb use of unaccounted/tax‑evaded money in property transactions.
  • Reports new enforcement powers and penalties directed at property-related black money, showing government focus on real estate.
Indian Economy, Vivek Singh (7th ed. 2023-24) > Chapter 14: Infrastructure and Investment Models > Shortcomings/criticism: > p. 435
Presence: 3/5
“• The Act requires all necessary approvals to be obtained prior to project launch, instead of certain specific approvals as previously required. This may delay project initiation and restrict supply of new properties.• The Act has provisions for penalizing developers in case of delays. But in many cases the main cause of delay is slow approvals from government agencies. Without a singlewindow clearance mechanism and fixed timeline for approvals there may be cases where bona fide delays by developers may still result in an unfavourable penalty.• The Act does not address the practice of using black money in real estate transactions.”
Why this source?
  • Notes that a major Act did not address the practice of using black money in real estate transactions, highlighting the sector’s centrality to the problem.
  • Implicates real estate transactions as a recognized channel for black money that policy needed to confront.
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