Logo1 Logo2
   Home>  Economy>> Parallel economy in India

     
     Share  

  Parallel economy in India
  Parallel economy connotes the functioning of an unsanctioned sector in the economy whose objectives run parallel, rather in contradiction with the aroused social objectives. This is variously termed as ‘black economy’, ‘unaccounted economy’, ‘illegal economy’, ‘subterranean economy’,  ‘unsanctioned economy’ or 'hidden economy'.  The National Institute of Public Finance and Policy (NIPFP) defines black money as the aggregate of incomes which are taxable but not reported to the tax authorities.  
   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.  
                   Black money
 The money laundering is a lack of transparency standards in bilateral and multilateral trade with flourishing offshore banking in tax havens has allowed it to grow unabated in past couple of decades.
  Experts estimate that around 50 per cent of GDP—or about Rs 33 lakh crore of black money—is generated every year through corruption at various levels. While black money which operates within the country can be productive, what goes overseas is seen as non-productive.

   

     Impact of Black Money
    Blck money in Mumbai 
    Mumbai big building and the biggest slum area Dharvai 
   The circulation of black money has adversely affected the Indian economy in several ways. 
 1. It leads to the misdirection of precious national resources.
 2. It has enormously worsened the income-distribution. The fixed income salary class finds itself ever be the lower rung of the income-ladder as they pay taxes. They are not able to catch up with the people in business, or in professions, or many of those employed who make money by black activities. Many high placed official and honest employees earn much less than an  small shopkeeper in big cities like Bombay and Delhi.
 3. The existence of a big-sized unreported segment of the economy is a- big handicap in making a correct analysis and formulation of right policies for it.
 4. Black money results in transfer of funds from India to foreign countries through clandestine channels. Such transfers are made possible by violations exchange regulations through the device of under – invoicing of exports and over-invoicing of imports etc.
 5. Black money requires for its protection, proliferation and expansion of a service organisation composed of musclemen, touts and brokers to combat the forces of law and order on the one hand and on the other hand, there are income tax advisers, or chartered accountants in the pay of black money operators. There are contact men, liaison officers, dalals  who negotiate favors from top bureaucracy and political bosses through bribes of black money.
 6. Black money has corrupted our political system in a most vicious manner. At various levels, MLAs, MPs, Ministers, party functionaries openly go on collecting funds for party or elections. Ministers dole out favours of crores by accepting black money donations of a few lakhs from businessmen  National policies are, therefore, being bent in favour of the big business under the pressure of black money.
 7. Causes inflations in India

8.Impact of India's reputation on the world: This Black money and corruptions put a very bad impression in India reputation on the world. Many big businessmen in world are pulling their hand back from India. They are not interested in to do business with India due to this corruption. It's also effect on Indian economy. In corruption perceptions index (CPI) India is ranked 87 numbers out of 178 countries. Due these big scams like 2G scam, commonwealth game scam and the recently coal mines scam.. 
  The politics of black money thus has corroded the moral fibre of Indian polity. Ministers dole out favours of crores by accepting black money donations of a few lakhs from businessmen. National policies are, therefore, being bent in favour of the big business under the pressure of black money.
  Due to the pernicious impact of black money on the Indian economy and polity that the Wanchoo Committee concluded: “It is, therefore, no exaggeration to say that black money is like a cancerous growth in the country’s economy which, if not checked in time, is sure to lead to its ruination”.
 

    

    Survey on Bribery and Corruption
  India lost a staggering $462 billion in illicit financial flows due to tax evasion, crime and corruption post- Independence, according to a report released by Washington-based Global Financial Integrity. The document on the "Survey on Bribery and Corruption" was released at the first annual fraud conference organized by the Association of Certified Fraud Examiners here on June 21, 2011. The report stated that 68% of India's aggregate illicit capital loss occurred after India's economic reforms in 1991, indicating that deregulation and trade liberalization actually contributed to or accelerated the transfer of illicit money abroad. Reports that wealth is stashed in offshore destinations and tax havens also goes to indicate the extent of the problem, the report said.
  The KPMG India Fraud Survey 2010 suggested that today India is faced with a different kind of challenge. It is not about petty bribes, popularly known as 'bakshish' anymore, but scams to the tune of thousands of crores that highlight political and industry nexus which if not checked could have far reaching impact on the economy. India has been facing governance challenges from within at various levels for a long time. "Rigid bureaucracy, complex laws and long-drawn judicial process deter people from considering legal recourse in corruption cases. India has around 35 million court cases pending. Besides lack of manpower and poor infrastructure facilities, other factors hindering the anti-corruption drive include lack of teeth in the legal framework," the study said.
  "A large number of respondents stated that organizations pay bribes to win and retain businesses. This is a typical scenario where organizations tend to overlook the implications of encouraging these practices and often look only at short term benefits achieved. They fail to realize that what has worked in their favour could also land into trouble later and lead to adverse consenquances for them," the report said.
  The study noted that another key area where business is impacted is in the area of mergers and acquisitions. "Nearly 37% respondents opined that the corruption could impact the valuation of a company thereby denying shareholders of a fair price. Moreover, it could also make it difficult for them to find a suitable business partner, thereby seriously impacting the growth prospects of the business," the study said.

  Ugly faces of black money and corruption
  The appropriation of public and national wealth through bribes and black money is the third facet of corruption. 
  2010 was the year of scams — 2G Spectrum, Commonwealth Games, Adarsh Housing Society etc.
  2011 has emerged as the year of the fight against corruption — with social activist Anna Hazare’s fast for a Lokpal Bill and Baba Ramdev’s fast to bring back black money stashed away in foreign banks.  
  2012 was the yera of biggest scam of the distribution of coal mines.
  Forceful capture of land - 20 police battalions were being used to crush the anti-Posco movement in Odisha and destroy the betel-vine gardens that are the basis of people’s prosperous living economy, earning small farmers Rs 400,000 per acre. 
   The ecology movements and tribal and farmers’ movements are fighting against the corruption involved in the massive resource grab and land grab taking place across the country for the mining of bauxite, coal and iron ore, for mega steel plants and power plants, for super highways and luxury townships.
  Farmers fighting the land grab along the Yamuna Expressway were killed on May 7. While they received a mere Rs 300 per sq. m. for their land the developers who grab the land in partnership with government using the 1894 colonial land acquisition law sell it for Rs 600,000 per sq. m. This is corporate corruption.
   Farmhouses of farmers are burnt and destroyed to create “farmhouses” for the rich. Farms are destroyed to create Formula 1 race tracks and swimming pools for the elite. This obscene, violent, unjust land grab is the cruellest face of corruption in today’s India.

    Parallel economy booms
 
The black money issue has angered the masses as various groups have put out staggering numbers to highlight the extent of the problem. Despite several studies since the early Fifties, the exact estimate of the black economy and black money has remained elusive. Against this backdrop, the government has been forced to commission a study by three top economic thinks tanks to get an estimate on the size of the black economy. The study is expected to be over by September 2012 and provide fresh insights.
   What Civil Society Wants about black money
     Black money protest

   1: Ordinance to declare black money a national asset with powers to seize as well as confiscate, be it at home or overseas
   2:  Disclose the identity of those with loot stashed abroad
   3:  Life sentence or capital punishment for those found guilty
   4:  Join global efforts to combat drug and terror funding
   5:  Enact legislation so as to make property transactions transparent
   6:  State funding of elections, right from national to state, municipal and panchayat
 
How is the Government curbing it?
  The government has empowered its existing institutions and set up new mechanisms and institutions to unearth black money. The antimoney laundering law has been strengthened and more entities have been brought under its ambit to create a deterrent. India has joined global efforts to tackle illicit flows and also signed information exchange treaties with many countries. The gradual reduction in income tax rates has also helped improve compliance.
  In May 2012, the Government of India published a white paper on black money. It disclosed India's effort at addressing black money and guidelines to prevent black money in the future. 
  Central Board of Direct Taxes - is a statutory authority functioning across India under the Central Board of Revenue Act of 1963. This organization has Investigation Wings, spread all across India, which are headed by the Director General of Income Tax (Investigation) to find and stop black money. The Director General of Income Tax (International
Taxation) is in charge of taxation issues arising from cross-border transactions and transfer pricing. This organization has been in operation for nearly 50 years, is primarily responsible for combating the menace of black money, has offices in more than 740 buildings spread over 510 cities and towns across India and has over 55,000 employees.
 Financial Intelligence Unit - has been operating at a separate investigative entity since 2004. This government organization for receiving, processing, analysing, and disseminating information relating to  financial transactions. 
 Central Board of Excise and Customs and Directorate of Revenue Intelligence - is the apex intelligence organization responsible for detecting cases of evasion of central excise and service tax. 
 Central Economic Intelligence Bureau - functions under India's Ministry of Finance. It is responsible for coordination, intelligence sharing, and investigations at national as well as regional levels amongst various law enforcement agencies to prevent financial crimes, generation and parking of black money and illegal transfers.
   India has Double Tax Avoidance Agreements with 82 nations, including all popular tax haven countries. Of these, India has expanded agreements with 30 countries which requires mutual effort to collect taxes on behalf of each other, if a citizen attempts to hide black money in the other country.
  
A banking scandal highlights the problem of black money in India
  The videos of a “shocking mega-exposé” were released by an investigative website called Cobrapost on March 13th, and have hit the share prices of India’s biggest private-sector banks. The sting consisted of a journalist with a 
secret camera walking into bank branches, where he claimed to be linked to an unnamed politician whose house could no longer contain his cash. Staff in many branches were only too willing to help launder the money, usually by fiddling the rules for setting up accounts and insurance policies. 
  India’s top three private banks, ICICI Bank, HDFC Bank and Axis Bank, have instituted investigations into allegations of helping clients launder money through benami accounts.In separate statements issued within hours of the allegations made by online portal Cobrapost, the banks said they conduct business with the highest level of compliance with regulatory and legal requirements. 
  Earlier in the day, Cobrapost said it had carried out a sting operation that purportedly revealed how the banks were helping customers launder black money by ope­ning benami accounts and channelling it through sundry accounts to legitimise the transactions. The three banks are run by professionals and two of them — ICICI Bank and Axis Bank — are led by two best-known women bankers, Chanda Kocchar and Shikha Sharma, respectively. Aditya Puri runs HDFC BANK. According to a PTI report, Cobrapost editor Aniruddha Bahal alleged in a press conference that Indian banks now behaved like Swiss banks.

  
 IPL spot-fixing is another Corruption
  
   Cricketers

 In the wake of the IPL spot- fixing scam involving cricketers Sreesanth, Ajit Chandila and Ankeet Chavan, there’s clamour all round that the BCCI (Board of Control for Cricket in India) once again failed to stem the widely-prevalent corrupt practices in Indian cricket.
 There are strong allegations that the scam is not restricted to just 3 players but goes deeper involving senior cricketers and possibly team owners. There is also the charge that the BCCI has deliberately cast a blind eye to the malpractices in Indian cricket so as not to upset the multi-billion dollar business of cricket in India. Once again, our entire discourse on corruption is dealing with the symptoms of the disease without looking at the root causes of the disease itself.
 Every time a scam involving corruption erupts in India,  we look at that scam in isolation.  
 But what about our prominent media houses who introduced the corrupt practice of “paid news” in the system, which is now so very well-entrenched? What about the vast lobby of real estate developers and builders who fuel corruption to bypass the law? What about our private educational institutions which demand lakhs of rupees in unaccounted donations for admissions to sought-after professional courses? What about the corrupt practices of our doctors and managers in private companies?

  RBI workshops to work on stopping ‘parallel economy’

   RBI
  To deal with the parallel economy, what the fake currency note system
is un-popularly known for, the Reserve Bank of India (RBI) is stressing more on customer awareness. The regulator bank apart from publishing advertisements pointing out unique features of Indian currency would also organise workshops to tame the menace. 
  Directing to hold such an awareness camp in Ranchi, Suma Verma, Chief General Manager, of the RBI instructed General Manager HN Panda about this while adding that the problem can be rectified by working in tandem only.
  “Know your note’ is the mantra to deal with counterfeit currency notes in operation. Have a workshop here on reduction of fake note and create awareness among common public. Fake note is the biggest crime against country,” said Verma on October 19, 2012.

      Site copyright ã 2010, Supersystems.in  All Rights Reserved