Black money estimated at 30% of GDP

Calculation based on a global study indicates Rs 28 lakh-crore parallel economy

India’s black money economy could be as high as 30 per cent of the gross domestic product (GDP), indicating the size of the parallel economy could be about Rs 28 lakh crore.

The government had asked three think tanks —National Institute of Public Finance and Policy, National Institute of Financial Management and National Council of Applied Economic Research — to arrive at an estimate of black money in the country. The three used various methodologies and have given various estimates. A source in the know of the work done by the think tanks said one of the estimates was on the basis of the methodology used in a World Bank research group report, which pegged India’s current black money economy at about 30 per cent of GDP.

The government had asked the three think tanks to submit their reports and suggestions to tackle the problem by December 31. The reports of the institutes are now with the finance ministry, which is expected to present the findings before Parliament in the Budget session.

The World Bank research group’s study done in 2010 — Shadow Economies All Over the World: New Estimates for 162 Countries from 1999 to 2007, by Friedrich Schneider, Andreas Buehn and Claudio E Montenegro — is considered to be one of the most authentic report on the unofficial economy across the globe. It estimated India’s shadow economy in 2006 to be 25.1 per cent of GDP, against 22.9 per cent in 1999.

Results based on the assumptions similar to this research showed India’s present black money economy to be around 30 per cent of GDP, said the source.

According to the World Bank researchers’ paper: “Shadow economy included all market-based legal production of goods and services that are deliberately concealed from public authorities to avoid payment of income, value-added or other taxes or to avoid payment of social security contributions or having to meet certain legal labour market standards, such as minimum wages, maximum working hours, safety standards and to avoid complying with certain administrative procedures, such as completing statistical questionnaires or other administrative forms.”

According to their analysis, the shadow economy had reached remarkable proportions, with an average value of 34.5 per cent of official GDP over 162 countries between 1999 and 2006-2007.

The research report found that average size of the shadow economies in the 162 selected countries (developing Eastern European and Central Asian, as well as high-income OECD countries) increased only modestly from 33.7 per cent of official GDP in 1999 to 35.5 per cent of official GDP in 2007.

OECD (the Organisation for Economic Co-operation and Development) is a grouping of about 34 member nations, according to its website.