The shadow economy created due to hawala dealings overburdens the honest, hardworking taxpayers who constitute mere one percent of the total population. Hawala trading is one of the major sources of black money. In hawala, the money is transferred from source to destination without actually moving it. It is a parallel illegal network where the money is given to an agent at the source and is collected from a network agent at the destination in exchange of a commission and government loses tax on such illegal transfers.
In most of the cases this is black money and thus to evade tax authorities this parallel route is used to transfer money. Audits reports and IT raids have proved that a large part of Indian economy is black and that the dishonest politicians, industrialists, bureaucrats have stashed huge amounts of illegal wealth in foreign banks in tax heaven countries.
Hawala trade has also received a punch as a result of demonetization. With demonetization rendering old currency notes invalid, the entire network is broken. Hawala traders are no longer accepting cash and transferring it to a destination because the currency is not a legal tender. Such money if deposited into banks would attract heavy penalties leaving that also as not a very good option.