| Black Economy
Black economy is the sum of all activities in which black incomes
are generated. Black incomes are generated by not declaring incomes
for tax purposes.
Black incomes are generated both in legal sector and illegal sectors
such as crime, drugs.
Arun Kumar, author of book “Black Economy in India”, estimates
that size of black economy in India is 60% of GDP.
At current level of taxation tax levels including direct and indirect
taxes would be around 40%. And hence for 60% of GDP taxes not collected
is around 20% of GDP. Hence a total tax not collected is around
Rs. 12-13 lakh crore for a GDP of Rs. 60 lakh crore.
India collects around Rs. 10 lakh crore. So tax not collected is
around Rs. 13 lakh crore. India’s fiscal deficit is around 10% of
GDP or about Rs. 5 lakh crore. So if all taxes were to be collected
India would have fiscal excess of around Rs. 7 lakh crores. And
this money could have been used for education, agriculture, health
and so on.
Black Economy hence is single biggest reason for policy failure.
Black Economy also leads to flight of capital abroad. Prof Arun
Kumar estimates that India’s growth rate is reduced by almost 5%
due to black economy. India’s present potential GDP growth rate
is 13%, but is merely 8% due to black economy. Indeed if India’s
economy was entirely white for last 40 years, India’s per capita
income would have been $ 7000 instead of present $ 1000.
Black Economy is due to systematic and systemic problem. Politicians,
Bureaucrats, Police and Judiciary are together responsible for black
economy.
Underlying black economy is triad of corrupt political class, corrupt
executive and corrupt business class and corrupt executive consists
of bureaucracy, police and judiciary. It is this triad that is responsible
for corruption. This triad does not want black economy to be affected
adversely.
Black economy causes $ 70 bn due to flight of capital every year.
Black Economy thus reduces employment potential by reducing development
potential.
Election expenditures may not be cause of black economy. However,
black economy does not want good elections.
Challenges
1. There is lack of political will to curb black economy.
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