There is a lot of money in India that is earned, spent, changes hands but the government never comes to know about it. This is called hidden economy, that is, the economy which is not visible but definitely runs. It is estimated that out of every 100 rupees in India, about 26 rupees roam in this hidden world. When a shopkeeper takes cash and does not give a receipt, when a landlord takes rent in notes and does not write it down anywhere, they are part of the same world.
Hidden economy is also called shadow economy. This includes all those works which are real, in which money is earned and spent but about which there is no government information. Neither tax is paid, nor GST is deducted, nor any receipt is received. The scope of this economy is huge, from a small barber shop to big builders, from a rickshaw puller to some big businessmen. This includes everything from roadside vendors to agricultural laborers and construction workers. This is not just a world of poor or small people, rich and educated people are also a part of it.
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some important data
The total shadow economy of the world is about 12.5 trillion dollars and its largest share is in big countries. In the year 2000, the world’s shadow economy was 17.7 percent of GDP, which will come down to 11.8 percent by 2023, but in India this decline is very slow. India’s Tax-to-GDP ratio is only about 6 percent, which is so low because of this huge hidden economy. The more money is hidden, the less tax will be collected and the less government facilities will be available.
Even today, cash is the most prevalent form of payment in India. The reason for this is simple, no trace is left in the cash. No bank entry, no digital records, no questions. This is the reason why many transactions, whether it is a rented shop, labor or land deal, are still done in notes. The real estate sector alone constitutes about 45 percent of India’s parallel economy. That means the real estate business is the biggest player in this hidden economy.
Not just cash, there is also network
The hidden economy is no longer limited to notes only. A complete network works in this. Some contractor gets the work done without any bill, some doctor does not give receipt of fees, no tenant keeps any written account of the rent. Money circulates in all these transactions, people earn, spend but all this remains out of the sight of the government. In some places, entire markets run like this where everything is done ‘without bill’.
What steps did the government take?
In November 2016, the government demonetized Rs 500 and Rs 1,000 notes, which at that time were about 86 percent of the total cash in circulation in the country. Its purpose was that the black money hidden in the notes should come to the fore. Along with this, GST was implemented in July 2017 which replaced all the different taxes with a single tax system.
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This made it difficult for businessmen to hide because every purchase and sale started being digitally entered. The trio of Jan Dhan Yojana, Aadhaar and mobile, called JAM Trinity, connected millions of people to the banking system for the first time. Apart from this, with the promotion of UPI and digital payments, keeping records of transactions became easier.
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