Shadow Economy of India

[The author, Gaurav Banerjee is a 3rd-year student pursuing law from Maharaja Agrasen Institute of Management Studies. He aspires to continue his future endeavours in the field of litigation specialising in the civil jurisprudential facets.]

INTRODUCTION

Shadow Economy in layman’s term signifies any illicit economic activity which generates revenue substantial enough to give effective sustenance to an alternate economic domain i.e. The black market and undeclared revenue from legal tenders constitute as effective proponents for the existence of shadow economy. The shadow economy has been widely acclaimed as a major source of financial reimbursement for the majority of people in India.

As per an eminent website, Black Money has been defined as follow’s “The black economy consists of all the activities in which black incomes are generated and black incomes are factor incomes, property incomes, not reported to direct tax authorities”[1]. It has been estimated that Black Money has accounted for more than 62% of India’s total GDP. Some authorities have even claimed that if Black money gets appropriated to the justifiable authority then each citizen of India can have at least 15 Lakh in their individual bank accounts.

RETROSPECTION OF BLACK MONEY’S GENESIS

Black money in India specifically originated from the very time when India attained her independence way back in the year 1947 from the British authorities. As the democratic aspirations of the people started diminishing gradually, the political class became ruthlessly omnipotent which acted as a catalyst for any regulatory authority to not intervene and stop the outflow of black money. The Government of India reports 1956, specifically propagated an idea of stopping the flow of black money so that necessary funds can be utilised to see the nation prosper by prioritising the money for development. Several private business tycoons accrued substantial benefit due to the prosperity of the black market activities. Such private players also realised that in order to have favourable influence towards the formulation of trade and economic policy which could substantially benefit their business, there has to be close affinity towards key political figures. Therefore, Multiple Businesses endeavoured towards financially endorsing the political campaigns of eminent political parties and began to bring about an effective change in the higher bureaucratic level of the government and consequently influencing the dynamics of the policy formulation. Subsequent to the post marketization phase after 1991, there seemed to be an exponential increment of the corrupt individuals who dominated the society and overwhelmed it with their nefarious intentions to propagate personal agenda. Such individuals included political, business and criminal behemoths who’s dominating influence could not have been overruled by even the strongest of adversaries. Due to the liberalisation of the economy, Vast opportunities could have been tapped into by such corrupt individuals, opportunities which were available for capitalisation included Mines, Forest and Land. The Black money is often incentivised by its vague veil which acts as an effective cover for concealing their nefarious activities, such a veil is often in the form of a government which further reassures the public that the individuals concerned for indulging in black market activities are nothing but cooperative law-abiding citizens.

MEANS TO CURB THE DEVASTATING IMPACT OF BLACK MONEY

One of the most prominent ways through which such a massive proportion of black money can be effectively dismantled or for that matter be completely obliterated is by giving compliance to the methods which have been discussed in detail underneath:-

1)The utilisation of the RIGHT TO INFORMATION ACT,2005[2]

Right to Information (RTI) is an act of the Parliament of India which sets out the rules and procedures regarding citizens' right to information. It replaced the former Freedom of Information Act, 2002. Under the provisions of RTI Act, any citizen of India may request information from a "public authority" (a body of Government or "instrumentality of State") which is required to reply expeditiously or within thirty days. In case of a matter involving a petitioner's life and liberty, the information has to be provided within 48 hours. The Act also requires every public authority to computerise their records for wide dissemination and to proactively certain categories of information so that the citizens need minimum recourse to request for information formally[3].

The Right To Information Act,2005 was promulgated by the parliament on 15 June 2005 and was given effective operationalisation on 12th, October 2005. It has been estimated that on an average on a daily basis there are close to 4800 applications and ever since the enforceability of the right to information act, 17,500,000 applications have been passed. RTI has been deemed to be a fundamental right which has been guaranteed to every citizen of India. The right to information act as envisaged by the parliament can reveal the outstanding details of the black market which were earlier kept under a secretive veil and make liable any or all the perpetrators who had indulged in such an act.

The black economy functions in secrecy. Hence the most important tool that we have to bring it out into the open is the RTI provision. It is crucial to bring under RTI all political parties, the judiciary, the prime minister and the chief ministers’ offices. If it is extended to them, it would make the politician and the executive accountable and their functioning transparent so that, unlike at present, they cannot subvert the law deliberately[4].

2) Amendment to the existing tax assessment structure

There has to be a profound change in the basic principles underlying the taxation assessment system which at the moment has limited scope due to its flawed assessment mechanism. The assessment scope should include all forms of the tax evaluation method, including all forms of WEALTH TAX, TAX ON ESTATE AND GIFT. Corporation Tax should give utmost emphasis on gross profit and not net profit so as to obviate circumstances wherein manipulation is present.

Property taxation, which is currently manipulated by fudging the value declared, should be based on site and services valuation. Indirect taxes to need to be simplified by levying them only on final and luxury goods. In the case of taxation of services, incomes are manipulated since norms are difficult to establish. Such manipulation of income by those in the services sector needs to be checked via what is called a presumptive tax.[5]

3) Changing the Political Landscape of India

Sufficient reorientation measures have to be inculcated in order to rebuild a conducive democratic and a political environment which is devoid of any form of affiliation’s or endorsement of any kind of illegal activities which can come under the encapsulation or purview of Black market.

The above guideline can effectively be given strict adherence to by giving or showing profound compliance to the following ideology

“A major reform required is that political parties function democratically. There is a need for internal democracy. Many of today’s leaders come up without serving the people and take over parties. Parties and constituencies are often passed on by political leaders to relatives like property. Such leaders are often contemptuous of the people and represent mostly the interest of society’s upper crust. Citizens’ groups which can present an independent record of the performance of the candidates before elections will help make voters better informed. Finally, exercising one’s vote should not merely mean going to the polling booth on election day. A politically alert public – which votes consciously in the national interest and not along caste and communal lines – is needed.”[6]

CONCLUSION

In conclusion, One can clearly understand what shadow economy consists of and how devastating it’s implication can be upon the prosperity of an entire nation. The Shadow economy primarily consists of economic activities which have been considered as illegal and there can be prosperous consequences upon individuals who happen to have an interest in betraying their own country for financial gains, such abhorrent individuals can gain an omnipresent status if they are left unregulated without any legislative constraints.

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[1] Definition of Black Money, The Wire, https://thewire.in/books/scourge-black-economy-india-origins-causes-remedies

[2] RTI ACT,2005, https://rti.gov.in/rti-act.pdf

[3]Basic Details of Right To Information act,2005, https://en.wikipedia.org/wiki/Right_to_Information_Act,_2005

[4] Scope of the applicability of Right To Information act 2005, https://thewire.in/books/scourge-black-economy-india-origins-causes-remedies

[5]Refinement of property taxation, https://thewire.in/books/scourge-black-economy-india-origins-causes-remedies

[6] Political reformation to curb the black market effectiveness, https://thewire.in/books/scourge-black-economy-india-origins-causes-remedies