What is Black Economy?

Black economy is referred by more than 30 different names across the globe as per some international studies. The other names of the black economy are parallel economy, black money, informal economy etc. Basically black economy consists of all the activities in which black incomes are generated which do not get reported to tax authorities. Black economy exists everywhere, from developed countries to developing countries. Those involved in black economy circumvent the rules and regulations set by the Governments.

Latest News: On September 13, 2021, it was announced that the Indian government will get third set of Swiss bank account details of its nationals under an automatic exchange of information pact with Switzerland. It is a key milestone in India’s fight against black money stashed in foreign banks.

The information on Black Economy will definitely be helpful to prepare for the upcoming IAS Exam.

Black Economy – Types

The black economy can be classified into four major categories –

  1. Illegal Economy – income produced by those economic activities pursued in violation of legal statutes for example extortion and drug dealing.
  2. Informal Economy – those economic activities that circumvent the costs and are excluded from the benefits and rights incorporated in the laws and administrative rules. Non-market activities, such as the production of household services or favors exchanged by friends and neighbors, fall into this category.
  3. Unrecorded Economy – economic activities that circumvent the institutional rules that define the reporting requirements of government statistical agencies. Deliberate concealment information for legitimate or illegitimate reasons or due to practical difficulties in data collection.
  4. Unreported Economy – Under-the-table employment and untaxed private transactions fall into this category. This type of economy seeks to evade the institutionally established fiscal rules as codified in the tax code.

What is the Percentage of Black Economy in India?

As per estimates of some economists, the black economy of India is estimated to be at 62% of the GDP. It is more than the income generated by Agriculture and Industry combined together. It is larger than the spending of Government of India. The impact of it is, the Indian economy has been losing growth at an average of 5% from the 1970s.

What is the Amount of Black Economy in India based on Study Commissioned by the Ministry of Finance?

Ministry of Finance had commissioned a secret study, which concluded in 2014. As per the report, around 90% to 97% of the unaccounted wealth of India was lying within India and not outside India. This was one of the key factors for the Government of India to go ahead with demonetization, which removed 85% of currency in circulation. This report was an amalgamation of reports generated by three Institutes. As per National Institute Public Finance and Policy (NIFP), between 1997 and 2009 the flow of illegal money out of the country was 0.2% to 7.4% of GDP. As per 2 other institutes the flow of illicit money out of country ranged from 2.8% to 10% of the Indian Economy. However all 3 institutes unanimously reported that all 97% of the illegal wealth was within India.

What Type of Economy is followed in India?

India has a mixed economy. As per latest almost 50% of the country’s workforce is dependent on agriculture. Approximately 30% of the workforce is employed in the services sector. 2/3rd of India’s output comes from the Services sector. The productivity of this segment resulted in India shifting more towards market economy. In the 1990s it opened its economy with privatization, liberalization, and globalization.

The above details would help candidates preparing for UPSC 2021.
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