indian economy black economy

1. Simply put, parallel economy often could be demonstrated
as hidden/unaccounted/illegal economy of a country.
People or business entities when do not show their exact
income as per government rules the income comes under
parallel economy.
The informal economy includes unreported income
from the production of legal goods and services, either
from monetary or barter transactions - hence all
economic activities which would generally be taxable
were they reported to the state (tax) authorities.
PARALLEL ECONOMY

2. Generation of black money
Illegal means-such as crime(narcotics, smuggling)
and corruption(bribery, leakages from govt spending).
Legal means-income generated from legitimate acts but
taxes are not paid on them. Ex-property dealings

3. Parallel economy exists due to:
 Ineffective enforcement of tax laws
High tax rates implemented by the government.
Complicated tax paying procedures and policies.
 Large public expenditure
Involvement of government agencies and officials in
corrupt practices.
 Shortages
 Money laundering
 Property dealings, funding to political parties

4. Effects of parallel economy
 Loss of revenue to government: black money is not
recorded or reported, so no tax is paid through income.
Business class indulge in under-reporting of output, sales,
under registration of property. So, both direct and
indirect taxes are evaded which lead to huge loss to
revenue of government.
 Wrong estimation of gross domestic product:To evade
taxes manufacturers under-report their output , sales,
while service sector like doctors, charted accountants,
etc. under report their income this lead to under-
estimation of gross domestic product.

5.  Corruption in political system: black money has corrupted our
politics in bad manner. At various levels, MLA’s, MP’s, ministers and
party workers collects the money from small-small businessmen.
Corrupt ministers tap big business houses. Ministers give favor and
support to large MNC’s and receive high amount of donations from
them.
 Investment in unproductive assets: if anyone had black money they
invest their money in foreign liquor factories, luxury housing,
wasteful expenditure on non essential luxuries cars, parties, etc.

6.  Unequal distribution of wealth: due to non payment of taxes rich
sector is becoming richer and poor ones are becoming poorer.
Which results in unequal distribution of wealth.
 Others: eroding value system, corrupts political system, pushes up
the value of land prices

7. Black money in Swiss banks-
TOP 5 COUNTRIES
India - $1,500 billion
Russia - $ 470 billion
UK - $390 billion
Ukraine - $100 billion
China - $ 96 billion
India with $1456 billion or $1.4 trillion has more money in Swiss
banks than rest of the world combined.
What about other international banks?

8. After paying the entire foreign debt, we will have
surplus amount, almost 12 times larger than the
foreign debt. If this surplus amount is invested in
earning interest, the amount of interest will be more
than the annual budget of the Central government.
Fact: if all black money is recovered then Indian government can run
the country for min. of 25 years and can also pay back its all foreign
debt
IS INDIA POOR ?

9. Measures taken by govt:
 Voluntary disclosure schemes.
 Demonetization
 Reduction in taxes.
 NRI voluntary disclosure schemes.
 Double taxation avoidance agreement
 Implementation of various acts such as-Black money and imposition of taxes
act, Benami transaction act 2016,Money laundering act
 Investigation of panama leaks.