Black money or unaccounted money circulating in the parallel economy is a big menace to the economy. Thus it is necessary to understand  the  concept  of  parallel economy. According to Feige when economic activities goes unreported or not measured by societies current techniques to monitor economic activity it falls under parallel or hidden economy.

  • Parallel economy connotes the  functioning of an unsanctioned sector in the economy. A hidden economy in its broadest sense may consist of – a). illegal economy, such as money laundering, smuggling, etc.
  • b) unreported economy including tax evasion.
  • c) unregulated economy, ie economic activities outside regulations.

Money laundering involves disguising financial assets so that they can be used without detection of the illegal activity that produced them. Through money laundering, the launderer transforms the monetary proceeds derived from criminal activity into funds with an apparently legal source. The most common types of criminals who need to launder money are drug traffickers, embezzlers, corrupt politicians and public officials, mobsters, terrorists and con  artists.

Brief Background

  • The Indian economy has continuously recorded high growth rates and has become an attractive destination for investments; but the recent unearthing of corruption cases has thrown light on the dark side  of the  growth  that is rise of  the  black  money  circulation  in  the economy.
  • In 1955, a study conducted by noted economist Nicholas Kaldor showed that the black economy accounted for 4-5 % of the country’s gross domestic product (GDP) amounting to roughly Rs 600 crore. In 1969, a panel headed by Justice Wanchoo recommended several measures to streamline the taxation system and estimated the size of the black economy at Rs 7,000 crore. Since then, several experts have undertaken various projects and given their assessments of the problem. A study conducted by the National Institute of Public Finance and Policy under the chairmanship of Raja Chelliah in 1980-81 showed that the black economy accounted for 20% of GDP which would now translate to about Rs 15 lakh crore. A study by S.B Gupta in 1992 put the figure at 42% of GDP for 1980-81 and 51% for 1987-88. Estimates by eminent economists reveal that India’s parallel economy has risen from a mere   3 percent of the GDP in the mid 50s to around 50 percent  today.

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