BLACK ECONOMY

WHAT IS BLACK ECONOMY??

A hidden sector of the economy where private cash transactions go unreported.

It is a sector of economic activities involving illegal economic activities including buying and selling of drugs.

That part of an economy that is hidden from the government and on which taxes are not paid.

HOW IT IS FORMED??

Your rightful indulgences like shopping, eating out, going to movies, most certainly have a bolstering effect on the economy.

But, there exists a dark side which cleverly evades taxes to generate what is colloquially referred to as ‘black money’.

This ‘sin’ economy, comprising fake and counterfeit products, smuggled and pirated goods, unauthorised gambling, bribery and prostitution, among a host of other sinister activities that go unaccounted, has a draining effect on the economy.

So Just how big is

the black economy?

Effects of black economy….. Affects public revenues. Degenerates the investable

surplus. Delimits the national productivity. Drains the balance of payments. Distorts equity and equality

concepts of economic distribution.

EFFECTS ON INDIAN ECONOMY… While there are no authentic

figures, economists feel that it is in the region of 40% of India’s gross domestic product (GDP).

Professor of economics, Jawaharlal University, Arun Kumar, who has written one of the most authentic books on the subject, ‘The black economy in India’, puts the figure at around 50% of the GDP.

According to the latest estimate of Central Statistical Organisation (CSO), the size of the Indian economy is around Rs 61,64,000 crore.

Thus, the size of the black economy, taking it at 40% of GDP, is around Rs 25,00,000 crore or around $500 billion.

If all the estimated black money is

declared, it could generate a tax revenue of Rs 7,50,000 crore for the government! This is more than total tax collection at Rs 6,41,000 crore for 2009-10.

WHAT GOVERNMENT IS DOING?? Surely, the government can

make better use of this amount. Additional tax income to the government, would not only have helped the government to expand its welfare programmes, but also enabled it to take up more infrastructure projects.

But……

IMPACT ON VARIOUS INDUSTRIES…. The fast-moving consumer goods (FMCG)

industry loses 6-7% of its turnover due to counterfeit products and illegal imports.

The size of the FMCG industry is around Rs 1,00,000 crore, which pegs the losses to the sector from counterfeiting at Rs 7,000 crore.

With the excise rate applicable on personal care products being 8%, the duty evasion is well over Rs 500 crore annually.

It not only affects the industry but, more importantly impacts, consumer interests”.

Pharma is no different.

Of the drugs tested in a countrywide survey conducted by the Drug Controller-General of India, 0.4% were found to be spurious.

The size of India’s pharmaceutical industry is Rs 90,000 crore and the estimated size of the counterfeit market is around Rs 360 crore.

Apply a multiplier effect of ten, and

the economic value loss would be in excess of Rs 3,000 crore.

For the music industry, the turnover is said to have declined from Rs 1,200 crore in early 2000s to around Rs 600 crore, mainly due to pirated music CDs and DVDs.

The Rs 6,000 crore Indian film industry loses Rs 2,500 crore annually to piracy.

Over 800 million pirated DVDs discs are consumed in India annually and 1 million DVDs are added every month in India.

If there was no piracy, the estimated revenues earned by the government by way to the various taxes would be around Rs 1,000 crore per annum,

CONCLUSION Despite computerisation and issuance of

permanent account number (PAN) to all the taxpayers, benami transactions are still rampant.

According to a finance ministry source, 30% of the high-value transactions of total value of over Rs 55 lakh crore are without PAN.

A majority of real estate transaction have been reported without PAN.

The implementation of goods and services tax (GST) is expected to help contain the spread of black money in the economy to an extent.

PRESENTED BY

TAMALIKA PRIYADARSHINI AAKASHDEEP RAY MOUMITA SATABDI LAHIRI CHIRANJIT SAHA APARNA ROY SWETA BHATTACHARYA SHANTANU CHATTERJEE