BRIEF HISTORY OF PARALLEL ECONOMY IN INDIA
The Indian black economy is immense, lucrative, widespread, and has grown significantly since independence. The black economy has grown from about 3% in the mid- 50s to 20% by 1980, to 35% by 1990, and 40% by 1995. As a percentage of GDP and at almost $1 trillion in absolute terms, the black economy is larger than both the industrial and agricultural sectors. Corruption is pervasive from the lowest to the highest levels of public administration, public enterprise, bureaucracy, judiciary, law enforcement, and elected officials.
The history of corruption in India can be traced to late 18th century British East India company rule. The first governor-general of India, Warren Hastings was notably impeached on accounts of corruption in 1787. Though he was acquitted in 1795, his lengthy trial brought various aspects of illegitimate company activity to light. The East India Company laid the foundations of both a corrupt bureaucracy and a parallel economy. During World War II, this black economy experienced a surge. When large quantities of products and resources were allocated to the war effort, the general public experienced acute shortages of daily necessities. Scarcity, government controls, and private hoarding stimulated the growth of the parallel economy.
The most significant growth in the black economy occurred during and after the 1960s. Until this time, Gandhian and Nehruvian politicians who had been part of the independence struggle had largely administered the government. As their careers ended, officials who lacked their idealism, and were more likely to engage in corruption and rent-seeking practices, entered the government.
Today, corruption pervades the political leadership, the bureaucracy, law enforcement and the judiciary. Some of the most prominent causes have been patron-client relationships and communalism in the democracy, excessive bureaucratic administration and low wages at the bottom rung of public sector employment, ineffective punitive and combative measures, and a social environment conducive to corrupt practices.
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