Index

Introduction
Effects of parallel economy
Measures of parallel economy
What is Parallel economy?

Parallel economy includes those activities that go

unreported or are unmeasured by society’s current
techniques for monitoring economic activities.

‘Scneider & Enste’- parallel economy includes all

unregistered activities which contribute to the officially
calculated GNP (gross national product)

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 Parallel economy poses a serious threat to stability and
growth of the official economy, surely it stems from the
fact that the magnitude of ‘black money’ is large and
rigged deals are growing in volume and complexity at an
alarming rate

Parallel economy is tax-evaded economy. It is possible to

convert illegal economy or black money into white money
OR VICE-VERSA.
 Effects of parallel economy

Loss of revenue to government: black money is not

recorded or reported, so no tax is paid through income.
Business class indulge in under-reporting of output, sales,
under registration of property. So, both direct and
indirect taxes are evaded which lead to huge loss to
revenue of government.

Wrong estimation of gross domestic product:To evade

taxes manufacturers under-report their output , sales,
while service sector like doctors, charted accountants,
etc. under report their income this lead to under-
estimation of gross domestic product.
 Difficulty in framing policies: due to lack payment of taxes, budgets of
government decrease through which proper plans and policies are
difficult to frame. Policies framed on the basis of wrong data prove
ineffective.

Unequal distribution of income: with distribution of income taxes are set

on the basis of per capita income of an individual. This point indicates
that the rich sector who is earning 12 or 14 lakh rs. Annually does not
pay tax. But the person taking 3 to 4 lakh rs. Annually pays tax.
Therefore it results in is unequal distribution of income.

Unequal distribution of wealth: due to non payment of taxes rich sector

is becoming richer and poor ones are becoming poorer. Which results in
unequal distribution of wealth.
 Corruption in political system: black money has corrupted our
politics in bad manner. At various levels, MLA’s, MP’s, ministers and
party workers collects the money from small-small businessmen.
Corrupt ministers tap big business houses. Ministers give favor and
support to large MNC’s and receive high amount of donations from
them.

Investment in unproductive assets: if anyone had black money they

invest their money in foreign liquor factories, luxury housing,
wasteful expenditure on non essential luxuries cars, parties, etc.
Measures of Parallel Economy

Special schemes: the government at various times adopt

special schemes to control parallel economy. some of them are:

Voluntary disclosure scheme: this scheme was adopted in year 1951-

1975. under this scheme, those declaring their income were not to
be punished.
Budget envisaged scheme: in this scheme people with uncounted
money, if deposits the same with the national housing bank, will be
given complete immunity from enquiry and investigation. The
government would deduct 40% of such deposits with the rest
belonging to depositors.
 Voluntary disclosure of income: this scheme was
introduced in 1997. such people were to pay the tax and
keep the declared income with them. The government
realize over 1,00,000 crores as taxes.

Raids: this is the most common means to catch the guilty

and the tax evaders and put them behind bars on the spot

Gold bond scheme: this scheme estimated that the total

amount of gold and silver legalized was about 100 to 200
tons. That gold and silver which is purchased by black money.
Policy of LPG models of growth:

Liberalization: under the liberalization policy of the government,

the licensing system, permits, quotas and other restrictions
imposed on private sector. Thus this reduces the amount of
donations to be given to civil servants by the business class to get
the license easily.

Privatization: in this policy , the new sector that were

previously exclusively reserved for public sector were opened for
private sector. Only three industries were reserved for public
(railway, atomic power, defense requirement). This made the
establishment of private industries more profitable that the
private sector need not to indulge in corrupt and malicious act.
Policy against the black money stored in Swiss bank: Swiss
Bank have a policy to not to disclose the bank account
information of their customer to any authority for any
purpose whatsoever. Recently India has urged the other
nations to put pressure on Swiss bank to disclose the
accounting details of Indian account holders. As per their
reports there is a total of 1.4 trillion$ of black money
related to Indians accounts.

Fact: if all black money is recovered then Indian government can run
the country for min. of 25 years and can also pay back its all foreign
debt
Top 5 SCAMS in India

2G spectrum Scam (Mr. A Raja)-------------------------1.76 lakhs crores

Commonwealth Games Scam(Mr. Suresh Kalmadi)------35000 crores

Telgi Scam(Mr. Abdul Karim Telgi)----------------------20000 crores

Satyam Scam (Mr. Ramalingam Raju)--------------------14000 crores

IPL Scam (Mr.Lalit Modi & Mr.Shashi Tharoor)

Top five country generating black money

India - 1456 billion $ (76,00,000 crores)

Russia - 470 billion $
U.K. - 390 billion $
Ukraine - 100 billion $
China - 96 billion $
Conclusion

Black money and corruptions are two sides of the same

coin.
Dishonest industrialist, scandalous politicians and corrupt
officials have deposits in foreign banks in their personal
illegal accounts a sum of about 1500 billion $.
1500 billions $ = 76,00,000 crores.

Fact: if the total black money is recovered then every Indian can have
his or her own XUV’s and every new born can be gifted the same for
next 6 months
Reference

All material included in this power point presentation is

taken from the book Indian Economy and Business
Environment (T.R. Jain, Ranju Trehan) and from site
www.slideshare.com