11 Jul Parallel Economy in India
The term “parallel economy” refers to economic activities that occur outside the official channels of the formal economy. These activities are often unregulated and may include informal and illegal transactions. In the context of India, the parallel economy is also commonly referred to as the “black economy” or the “shadow economy.”
India has had a significant parallel economy for many years, primarily due to various factors such as widespread corruption, complex tax systems, excessive regulations, and a large informal sector. The parallel economy encompasses a wide range of activities, including unreported income, tax evasion, smuggling, counterfeiting, bribery, and money laundering.
One of the key drivers of the parallel economy in India is the extensive cash-based transactions that make it easier to evade taxes and conceal income. Cash transactions allow for anonymity and can be difficult to trace, enabling individuals and businesses to operate outside the formal financial system. This has led to a substantial underground economy that bypasses tax obligations and hinders the government’s revenue collection efforts.
Various estimates have been made regarding the size of India’s parallel economy, but it is challenging to determine an exact figure due to its clandestine nature. Some studies suggest that the parallel economy could be as large as 20-25% of the country’s GDP, although these figures can vary significantly depending on the methodology used.
The Indian government has taken several measures over the years to address the issue of the parallel economy. These include demonetization efforts, tax reforms, increased surveillance and compliance measures, and initiatives to promote digital transactions. The implementation of the Goods and Services Tax (GST) in 2017 aimed to simplify the tax system and bring more businesses into the formal economy.
Efforts to curb the parallel economy also involve strengthening law enforcement, improving governance, and promoting financial inclusion. However, combating the parallel economy is a complex and ongoing challenge that requires a comprehensive approach involving policy reforms, institutional changes, and public awareness campaigns.
It’s important to note that while the parallel economy poses significant challenges to India’s economy and governance, it also reflects the socioeconomic realities faced by many individuals and businesses. Factors such as poverty, lack of access to formal financial services, and limited employment opportunities contribute to the perpetuation of the parallel economy. Addressing these underlying issues is crucial to effectively tackle the problem in the long run.