Page 348 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Indian Economic Policy

Notes Although there is substantial expansion of the role of the State and economic policies, the lingering,
influence of the outdated theories of economic policies is seen in the form of neglect of implementation
issues. However, the possibility of something like Government failure was hardly taken note of. The
empirical and realistic theoretical studies recognise that the policy processes carry the impact of both
market and non-market incentives, information, social power and influence conflicts and contradictions
between divergent economic interests, partisan character of the State and its personnel as compulsions
of a State chosen by competitive, democratic electoral processes in highly non-egalitarian societies.
Another potent source is growing global linkages that make the policy arena a virtual battleground.
It is observed that tax evasion, black marketing and violation of economic regulation are manifestations
of the ‘revolt’ by the market against high tax rates, ‘unjust’ price, distribution, investment and
movement controls and the curtailment of private and corporate freedom to take independent economic
decisions for the legitimate pursuit of their goal of maximising profits etc. The State has the
responsibility to moderate and modify economic policies and make them market-friendly if the parallel
economy is to be reduced to represent the marginal, deviant behaviour of some economic entities
with little macro-societal significance except as pinpricks. It may be noted that this parallel economy
imposes high, unnecessary or avoidable costs on business, or increases the transactions cost of business
by imposing rent of authority on private business i.e., illegal gratification extorted or collected from
or paid to the people enjoying and exercising State authority to permit the market players to operate
according to their own lights.
27.2 The Parallel Economy : Concept, Nature and Effects on Policy
Processes

Black money or unaccounted money circulating in the parallel economy is a big menace to the economy.
It is also a cause of big loss in the tax-revenues for the Government. As such it needs to be curbed. Its
elimination will benefit the economy in more than one way. It will also generate more revenues for
the Government.
Black money may be defined as the money that is generated by activities that are kept secret in the
sense that these are not reported to the authorities. As such this money is also not accounted to the
fiscal authorities i.e., taxes are not paid on this money. Contrasted to this is the white money that is
shown in relevant accounts and tax paid, if due.
Parallel economy connotes the functioning of an unsanctioned sector in the economy whose objectives
run parallel, rather in contradiction with the aroused social objectives.
The money involved in black/secret transactions or used in parallel economy (i.e., parallel to the legitimate
economy) is very large indeed. Very recently the National Institute of Public Finance Policy has estimated
that the sum involved is as much as about Rs. 40,000 crores. This constitutes around 20 per cent of the
gross domestic product of the economy. A recent estimate puts the size of black money at over 50 per cent
of GDP (at factor cost). It is also Stated that the annual rate of growth of black money is higher than the
annual growth-rate of GDP. The present size of black money is thus very large indeed.

Future Directions
The country must evolve a new concept, theory, strategy and policy framework of development. It
may be noted that these are long-term and uncertain tasks, depending on mega socio-economic factors
of both the national and global politics. For effective intervention, people must have at least a minimum
of livelihood adequacy and security. The existing order and its beneficiaries are the fountain head of
the black economy and perversion of policy processes. As a positive sign for strengthening the anti-
black economy forces in the economy, there should be a political framework which guarantees the
livelihood adequacy and security, as seems to be on the horizon with the enactment of the Employment
Guarantee law by the Government at the center. Moreover, democratisation of political parties and
electoral reforms in order to break the unholy nexus between politicians, corrupt business persons,
bureau-crats and the criminal mafia gangs can go a long way in moving towards a clean democratic
society in India. It may be observed that democracy and peoples’ own efforts are the means which
may be slow, difficult, at times frustrating. However, they do produce desirable outcomes over the

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