| 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.
There is lack of political will to curb black economy.
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