Page 365 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Unit 28: Parallel Economy

(a) opportunity cost (b) comparative advantage Notes
(c) market exchange (d) efficiency
(e) specialization
(vi) A mixed capitalist economy is one in which
(a) all resources are publicly owned and prices are used to coordinate economic activity
(b) all resources are publicly owned and economic planning is centralized
(c) all resources are privately owned and prices are used to coordinate economic activity
(d) decisions are based primarily on religion or custom
(e) resources are both publicly and privately owned and some markets are regulated
28.2 Summary

• Parallel economy connotes the functioning of an unsanctioned sector in the economy whose
objectives run parallel, rather in contradiction with the avowed social objectives. This is variously
referred to as ‘black economy’, ‘unaccounted economy’. ‘illegal economy’, ‘subterranean
economy’, or ‘unsanctioned economy’.
• With the attainment of independence and the advent of planning, more avenues of investment
in a large number of industries were opened. The concept of the mixed economy envisaged the
co-existence of a public sector and a private sector.
• Several attempts have been made to quantify black incomes in India. Broadly speaking, the
various estimates of black incomes made so far follow two approaches : (i) Kaldor’s approach
of quantifying non-salary incomes above the exemption limit of income tax and (ii) Edgar L.
Feige’s method of working out transaction-income on the basis of currency deposit ratio and
from it deriving the black income of the economy. Kaldor’s method has been used in the report
on Indian Tax Reform, and later by the Direct Taxes Enquiry Committee with some modifications.
• There is no doubt that the estimate of black income prepared by S. Acharya of the NIPFP has
meticulously searched for available information and, data and has tried to collate and present
a global estimate of black income. In this sense, it makes an advance over the earlier studies in
the sense that it is much more comprehensive.
• If similar ranges of black income generation had been developed by the study in immovable
property or personal incomes by including illegal acquisitions, its estimate of black income
would touch 30 per cent, which it treats as extravagant. To incorporate built-in-depressors in
the estimates and then to claim that black income is only 18 per cent appears to be illogical.
• Black income from customs (Import) Duty Evasion has been taken as not less than 30 per cent
of the customs duty due if there was no evasion. similarly. Suraj Gupta speaks of smuggling as
a “growth industry” in India and its guesstimate has been reckoned at as ` 12,000 crores in
1987-88.
• Three major states’ taxes, viz., sales tax, state excise duty and entertainment tax are the principal
ources of tax evasion. On the basis of some empirical findings, Suraj Gupta assumes evasion of
47 per cent of the potential tax revenue in these three taxes and 30 per cent of tax evasion in the
other state taxes.
• IMF staff survey on the unaccounted sector of the economy has estimated black money in India
at 50 per cent of Gross National Product (GNP), which was ` 1,45,141 crores in 1982-83 at
current prices. On this computation, India’s unaccounted sector is of the order of ` 72,000 crores.
• It would not also be fair to discard the monetary approach altogether because this also serves as
a cross-check on the other estimate. It is probable that truth lies somewhere between the two
extremes. In that sense, more research has to be directed in this regard.
• The creation of a parallel economy as a consequence of the growing proliferation of black money

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