Page 367 - DECO502_INDIAN_ECONOMIC_POLICY_ENGLISH

Unit 28: Parallel Economy

• A survey of the measures taken so far reveals that the Government has miserably failed to Notes
tackle the problems created by black money. Its approach in combating parallel economy has
been half-hearted, misconceived and in some cases, it has collaborated with the black money
operators in legitimizing black money.
• Broadly speaking, there are two schools of thought on the question of arresting and eliminating
the generation, growth and expansion of black money. There are economists who believe that
within the framework of the mixed economy as obtaining in India, black money can be eliminated
and its size can be brought within manageable limits so that it does not pose a threat to the very
objectives of national economic policies.
• The fundamentalist view, therefore, does not see any merit in making certain marginal
adjustments in tax rates because this will not serve any useful purpose in controlling black
money, nor does it see any merit in removing all controls, but it feels that if tangible results
have to be achieved, the abolition to private property or at least fixing a ceiling on property is
essential so that the motivation for acquiring more wealth itself is blunted.
• There are two variants of the moderate view. One is typified by Kabra who considers the
fundamentalist view as “naive, one-dimensional view of the state in as much as it fails to
recognise a need for partial, effective controls, without necessarily changing the character of
the state in its essentials.”
• In the light of these two broad view-points, we discuss in the following section the concrete
measures suggested for controlling die parallel economy in India.
• The real problem is that even at these modest rates of taxation as obtain today, those in high
income brackets do not want to pay taxes and rather like to evade on a massive scale. It is this
aspect which needs to be attended to.
• Finance Minister Mr. P. Chidambram stated in his budget speech (2008-09) : “The UPA
Government inherited a tax to GDP ratio of 9.2 per cent in 2003-04. At the end of 2007-08, the
ratio has risen to 12.5 per cent... Many people are surprised by the buoyancy in tax revenues,
especially in direct taxes. I am not. I have always maintained that moderate and stable tax rates
coupled with a tax administration that shows no fear or favour will bring high revenues to the
exchequer,’’
• There is no doubt that even today tax evasion takes place in indirect taxes and this generates
black income, but evidence of growth of Gross Tax Revenue only re-inforces the conclusion
that the magnitude of black money generation has come down.
28.3 Key-Words

1. Black Economy : A black market or underground economy is the market in which illegal
goods are traded. Due to the nature of the goods traded, the market itself
is forced to operate outside the formal economy, supported by the
established state power. Typically the totality of such activity is referred
to with the definite article as a complement to the official economies, by
market for such goods and services, e.g. "the black market in bush meat"
or the state jurisdiction "the black market in China".
2. Illegal Economy : The "illegal economy" consists of the income produced by those economic
activities pursued in violation of legal statutes defining the scope of
legitimate forms of commerce. Illegal economy participants engage in the
production and distribution of prohibited goods and services, such as drug
trafficking, arms trafficking, and prostitution

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