Aneesh Pandey

Section A
PGP13025

Society, Business and Indian Economy

Q1. How would you define a "black" economy? Elucidate the pattern of growth in India's black
economy over time and across sectors.

A black economy, also known as the underground or shadow economy, refers to economic activity
that is hidden from official view and is not included in a country's gross national product (GNP) or
gross domestic product (GDP). This type of economic activity is often illegal or unregulated, and it
typically involves the production, distribution, and trade of illegal goods and services.

1. One of the key characteristics of a black economy is that it operates outside of the formal
legal and regulatory frameworks of a country. This means that the people and businesses
involved in these activities do not pay taxes on their earnings, which can lead to a loss of
revenue for the government.
2. The black economy is often associated with illegal activities such as drug trafficking, human
trafficking, and money laundering. However, it can also include legal activities that are not
reported to the authorities, such as undeclared work or the sale of goods and services
without a license.
3. The size and growth of a black economy can vary depending on a range of factors, including
the level of government regulation, the level of corruption, and the state of the broader
economy. In general, a stronger economy and lower levels of corruption tend to be
associated with a smaller black economy.
4. In India, the black economy has historically been a significant part of the country's overall
economy. The size of India's black economy is difficult to measure accurately, but some
estimates suggest that it could be as large as 50% of the country's GDP.
5. The growth of India's black economy has been driven by a range of factors, including
corruption, tax evasion, and the informal nature of many small businesses. In recent years,
the Indian government has taken steps to crack down on tax evasion and other forms of
illegal economic activity, but the black economy remains a significant part of the country's
overall economic landscape.
6. The black economy in India is present across a range of sectors, including agriculture,
manufacturing, and services. In the agricultural sector, for example, the black economy is
often associated with the production and trade of illegal drugs and other illicit crops.
7. In the manufacturing sector, the black economy is often linked to the production and sale of
counterfeit goods, as well as the sale of goods without paying taxes or complying with other
regulations. In the services sector, the black economy is often associated with activities such
as undeclared work and the provision of illegal services such as gambling and prostitution.
8. The growth of India's black economy has had a number of negative consequences for the
country. For example, it has led to a loss of revenue for the government, which could
otherwise be used to fund public services and infrastructure. It has also contributed to
inequality and poverty, as the black economy often involves low-paid and unregulated work.
9. Despite these challenges, the Indian government has taken a number of steps to try to
reduce the size of the country's black economy. For example, it has introduced measures to
Aneesh Pandey
Section A
PGP13025
crack down on tax evasion and other forms of illegal economic activity, and it has sought to
promote the formalization of the economy by encouraging businesses to register and pay
taxes.
10. However, the growth of India's black economy is a complex and ongoing challenge, and it
will require continued efforts by the government and other stakeholders to address.

Q2. Which factors have led to the growth of India's black economy? Do you think the measurement
of the black economy is vital for framing result-oriented government policies? - (5 bullet points
each)

The following reasons have lead to growth of India’s black economy:

1. High levels of corruption and bribery, which make it easy for businesses and individuals to
evade taxes and regulations.
2. A lack of effective enforcement of tax laws and regulations, allowing individuals and
businesses to operate outside the formal economy.
3. High levels of inequality, which has led to a large number of people working in the informal
economy to make ends meet.
4. A large informal sector, which is not subject to the same regulations and taxes as the formal
economy.
5. A lack of access to formal credit and financial services, which has forced many people and
businesses to operate outside the formal economy.

Measuring the black economy is important for several reasons:

1. It can help the government understand the size and scope of the informal economy and the
factors that contribute to its growth.
2. It can provide important information for policymakers and regulators, who can use this data
to design more effective policies and regulations.
3. It can help the government track and monitor the flow of money in the economy, which is
important for economic stability and growth.
4. It can help the government identify areas where the informal economy is growing and take
steps to formalize these activities.
5. It can help the government collect more accurate data on the economy, which is essential
for making informed decisions about economic policy.