Parallel economy

parallel economy

1. ITS ORIGIN, SIZE AND IMPACT ON THE
MAINSTREAM ECONOMY

7. WHAT IS A PARALLEL ECONOMY?
Feige:“thehidden/paralleleconomyincludes
thoseactivitiesthatgounreportedorare
unmeasuredbythesociety’scurrenttechniques
formonitoringeconomicactivity.”
Scneider&Enste:“paralleleconomyincludes
allunregisteredeconomicactivitieswhich
contributetotheofficiallycalculatedGNP(Gross
NationalProduct).”

8. Simplyput,paralleleconomyoftencouldbe
demonstratedashiddeneconomyofacountry.People
orbusinessentitieswhendonotshowtheirexact
incomeaspergovernmentrulestheincomecomes
underparalleleconomy.
Theinformaleconomyincludesunreportedincome
fromtheproductionoflegalgoodsandservices,either
frommonetaryorbartertransactions-henceall
economicactivitieswhichwouldgenerallybetaxable
weretheyreportedtothestate(tax)authorities.In
general,aprecisedefinitionseemsquitedifficultas
theinformaleconomydevelopsallthetimeand
adjuststochangesintaxes,sanctionsfromthetax
authoritiesandtogeneralmoralattitudes.

9. Paralleleconomyexistsduetovariousreasonsand
theyareasfollows:
Hightaxratesimplementedbythegovernment.
Complicatedtaxpayingproceduresandpolicies.
Peoplebelievethattheirmoneyisnotgoingtobe
properlyutilizedbygovernmentastheirtruston
governmentisless.
Highinflationwhichputstaxpayersunderhightax
payingbrackets.
Peopledonotgetenoughreturnontheirpaidtaxes.
Involvementofgovernmentagenciesandofficialsin
corruptpractices.
Insufficientlawsandtheirimplementationtocounter
suchactivities.

10. BLACK MARKET
Theblackmarketisamarketwhereallcommerceis
conductedwithoutregardtotaxation,laworregulationsof
trade.
Itisgenerallysmallestincountrieswhereeconomic
freedomisgreatest,andbecomesprogressivelylargerin
thoseareaswherecorruption,regulation,orlegal
monopoliesrestrictlegitimateeconomicactivity.
Goodsacquiredillegallymaybecheaperthanlegalmarket
prices.Thesupplierdoesnothavetopayforproduction
costsortaxes.Thisisusuallythecaseintheunderground
marketforstolengoods.Criminalsstealgoodsandsell
thembelowthelegalmarketprice,butthereisnoreceipt,
guarantee,andsoforth.

11. Theamountofmoneylaunderedinthewholeworldiscloseto
$2.85trillionperyear.AsperanestimateofInternational
MonetaryFundtheaggregatesizeofthisundergroundand
illegitimatemarketisbetween2to5percentofworld’sgross
domesticproduct.
Therangeofactivitiesthattakesplaceinblackeconomiesis
vast,spanningfromtheinnocuous(t-shirtsandshoes)tothe
edgyanddangerous(sex,drugs,andguns).Also,muchofa
blackmarketislegalbusinessbeingconductedinaneffortto
evadetaxauthorities.
Itisachallengeforeconomiststoaccuratelymeasure,or
evenestimatethesizeofmanyblackeconomies.Thisisbecause
theymaybeillegal,andthereforearenotreportedtotax
authoritiesorstockexchanges.Themoneythatchangeshandsin
suchaneconomyareneverrecordedandnotaxesareeverpaid.

12. COMPONENTS OF A BLACK MARKET
ECONOMY
BLACK
ECONOMY
ARMS &
AMMUNITION
CORRUPTION &
BRIBERY
DRUGS,
ALCOHOL &
TOBACCO
COPYRIGHTED
MEDIA
CURRENCY
EXCHANGE
HAWALA
SWISS BANK
ACCOUNTS

13. ARMS & AMMUNITION
Theblackmarketsuppliesthedemandsforweaponrythatcannot
beobtainedlegally,ormayonlybeobtainedlegallyafter
obtainingpermitsandpayingfees.Thismaybebysmugglingthe
armsfromcountrieswheretheywereboughtlegallyorstolen,or
bystealingfromarmsmanufacturerswithinthecountryitself,
usinginsiders.Thosewhomaybuythiswayincludecriminals,
thosewhowishtousethemforillegalactivities.
Illicitarmstraffickingfuelscivilwars,contributestosky-
rocketingcrimeratesandfeedsthearsenalsoftheworld'sworst
terrorists.
SA/LWaccountforanestimated60-90%ofthe100,000+
conflictdeathseachyear(SmallArmsSurvey2005)andtensof
thousandsofadditionaldeathsoutsideofwarzones.Theyare
alsotheweaponsofchoiceformanyterrorists.

14. ValueofConventionalArmsTransfersin2008
(Deliveries,Worldwide):$44.75billion
AuthorizedSmallArmsSales(Worldwide,Annual):$5
billion(estimate)
IllicitArmsSales(Worldwide,Annual):10-20%ofthe
totaltradeinsmallarms(estimate)
Thefiguresclearlyindicatetheeffectsofillegalarms&
ammunitiontrading.Thesehavenotonlyaffected
economiesaroundtheworldthroughpromotionofterrorism
butthemoneyexchanginghandsgoesunaccountedwhich
isfurtherputtouseinthedestructionofworldheritage.

15. DRUGS, ALCOHOL &
TOBACCO
Theillegaldrugtradeisaglobalblackmarketconsisting
ofthecultivation,manufacture,distributionandsaleof
illegalcontrolleddrugsincludingalcohol&tobacco.
TheUNreportsaidtheglobaldrugtradegeneratedan
estimated$400billionin2008.
Theblackmarkettradeofdrugsmeansalossof2.5-5%in
governmentrevenues.Theblackmarketforillegaldrugs
accountsfor8%oftheworld'straderevenue,according
toUnitedNationsestimates.
Bestestimatesconcludethatgovernmentinterdiction
capturesonlyone-thirdoftheillegaldrugsthatsmugglers
trytobringintothecountry;thetwo-thirdsofthenarcotics
thatdocrosstheborderssuppliedanestimated$60-billion-
a-yearretailmarketin2000.
TheWHOsaysthetradeinillegaldrugsisvaluedaround
45billioneuros($66.22billion)andrepresentssome10
percentofthepharmaceuticalindustry.

16. CURRENCY EXCHANGE
Moneyitselfistradedontheblackmarket.Thismayhappenfor
oneormoreofseveralreasons:
difficultorillegalforthecitizenstoownmuchoranyforeign
currency.
taxesleviedonexchangingthelocalcurrencywithother
currencies,eitherinonedirectionorboth(e.g.foreignersare
taxedtobuylocalcurrency,orresidentsaretaxedtobuy
foreigncurrency)
currencyiscounterfeit.
currencyhasbeenacquiredillegallyandneedtobelaundered
beforethemoneycanbeused.

17. CORRUPTION & BRIBERY
Indiaisranked85outofa179countriesinTransparency
International'sCorruptionPerceptionsIndex.Hong-Kongbased
Political&EconomicRiskConsultancyLtd.,hasratedIndiathe
secondmostcorruptcountryinAsia,withacorruptionindexgrade
of8.9onascaleof10justbehindIndonesia.
InJuly2008WashingtonTimesreportedthatnearlyafourthofthe
540IndianParliamentmembersfacedcriminalcharges,
"includinghumantrafficking,immigrationrackets,embezzlement,
rapeandevenmurder".
InUttarPradeshAssemblyelections2002,candidateswithcriminal
recordswonthemajorityofseats.InBihar,morethan80%ofthe
subsidizedfoodaidtopoorisstolen.
A2005studydonebyTransparencyInternational(TI)inIndiafound
thatmorethan50%ofthepeoplehadfirsthandexperienceofpaying
bribeorpeddlinginfluencetogetajobdoneinapublicoffice.
TransparencyInternationalestimatesthattrucksplyingonIndian
roadspayannually$5billioninbribes.

18. A2009surveyoftheleadingeconomiesofAsia,revealedIndian
bureaucracytobenotjustleastefficientoutofSingapore,Hong
Kong,Thailand,SouthKorea,Japan,Malaysia,Taiwan,Vietnam,
China,PhilippinesandIndonesia;furtheritwasalsofoundthat
workingwiththeIndia'scivilservantswasa"slowandpainful"
process.
AccordingtoTransparencyInternational,judicialcorruptioninIndia
isattributabletofactorssuchas"delaysinthedisposalofcases,
shortageofjudgesandcomplexprocedures,allofwhichare
exacerbatedbyapreponderanceofnewlaws".
TheTIIndiastudyestimatesthemonetaryvalueofpettycorruption
in11basicservicesprovidedbythegovernment,likeeducation,
healthcare,judiciary,policeetc.,tobearoundRs.21,068crores.
BiharisthemostcorruptstateinIndia.

19. A2009surveyoftheleadingeconomiesofAsia,revealedIndian
bureaucracytobenotjustleastefficientoutofSingapore,Hong
Kong,Thailand,SouthKorea,Japan,Malaysia,Taiwan,Vietnam,
China,PhilippinesandIndonesia;furtheritwasalsofoundthat
workingwiththeIndia'scivilservantswasa"slowandpainful"
process.
AccordingtoTransparencyInternational,judicialcorruptioninIndia
isattributabletofactorssuchas"delaysinthedisposalofcases,
shortageofjudgesandcomplexprocedures,allofwhichare
exacerbatedbyapreponderanceofnewlaws".
TheTIIndiastudyestimatesthemonetaryvalueofpettycorruption
in11basicservicesprovidedbythegovernment,likeeducation,
healthcare,judiciary,policeetc.,tobearoundRs.21,068crores.
BiharisthemostcorruptstateinIndia.

20. COPYRIGHTED MEDIA

21. HAWALA
analternativeorparallelremittancesystem.
existsandoperatesoutsideof,orparallelto'traditional'
bankingorfinancialchannels.
developedinIndia,beforetheintroductionofwesternbanking
practices,andiscurrentlyamajorremittancesystemused
aroundtheworld.
componentsthatdistinguishitfromotherremittancesystems
aretrustandtheextensiveuseofconnectionssuchasfamily
relationshipsorregionalaffiliations.
makesminimal(oftenno)useofanysortofnegotiable
instrument.Transfersofmoneytakeplacebasedon
communicationsbetweenmembersofanetworkof
hawaladars,orhawaladealers.

22. HOW DOES HAWALA WORK?

23. WHY DOES HAWALA WORK?
Cost effectiveness
Efficiency
Reliability
Lack of bureaucracy
Lack of proper trail
Tax evasion

24. CONSEQUENCES
Narcotics Trafficking
Terrorism
Smuggling
Welfare Fraud
Insider Trading
Customs & Tax Violations
Gambling & Betting

25. SWISS BANK ACCOUNTS
Is INDIA Poor???

26. Withpersonalaccountdepositbankof$1500billionin
foreignreservewhichhavebeenmisappropriated,anamount
13timeslargerthanthecountry’sforeigndebt,oneneedsto
rethinkifIndiaisapoorcountry?.
Withthisamount45crorepoorpeoplecangetRs1,00,000
each.Thishugeamounthasbeenappropriatedfromthe
peopleofIndiabyexploitingandbetrayingthem.
Oncethishugeamountofblackmoneyandpropertycomes
backtoIndia,theentireforeigndebtcanberepaidin24
hours.
Afterpayingtheentireforeigndebt,wewillhavesurplus
amount,almost12timeslargerthantheforeigndebt.Ifthis
surplusamountisinvestedinearninginterest,theamountof
interestwillbemorethantheannualbudgetoftheCentral
government.

27. BlackmoneyinSwissbanks-SwissBankingAssociationreport,
2006detailsbankdepositsintheterritoryofSwitzerlandby
nationalsoffollowingcountries:
TOP 5 COUNTRIES
India -$1,456 billion
Russia -$ 470 billion
UK -$390 billion
Ukraine -$100 billion
China -$ 96 billion
Indiawith$1456billionor$1.4trillionhasmoremoneyinSwiss
banksthanrestoftheworldcombined.
What about other international banks?

28. YOU ME & BLACK MONEY
India'sparalleleconomyhasrisenfromamere3%oftheGDPinthe
mid50stoaround50%today.Theannualrateofgrowthofblack
moneyishigherthantheannualgrowth-rateofGDP.
India’sblackmoneyeconomyisrankedfifthhighestat$22bn-
$27bnayear,cominginbehindRussia($32bn-$38bn),Mexico
($41bn-$46bn),SaudiArabia($54bn-$55bn)andChina($233bn-
$289bn).
Thereareonly27milliontaxpayersinthecountry.Blackmoney
possessionanduseisonlyconcentratedinathinslabof3%ofthe
Indianpublic.
Thecountryhaslost$150billioningoldimportsandanother$100
billionincapitalflightsinceIndependence.
PilferageofelectricityinDelhihasresultedinaboomingRs.1,250
croreindustry.

29. Its our fault
DespiteitssideeffectsweIndiansareinvolvedinthisblack
moneymarketinonewayoranother.Someofthewaysin
whichwecontributetothisblackmarketare:
Bills
ChaiPaani
PropertyforSale
TaxEvasion
VoteBankPolitics

30. So, how does this black money affect you and me?
It leads to the misdirection of precious national resources.
It has enormously worsened the income-distribution.
Blackmoneyhascorruptedourpoliticalsysteminamost
viciousmanner.
Themoneyavailablethroughhawalaandothermeanshave
aidedactsofterrorismwhicheffectboththeintegrityaswell
astheeconomyofthecountry.
Thecountrybecomesadefactolenderofaidandcapitalto
economicallyadvancedandwealthiernations,withthe
concealedoutflowoffunds.
Theexistenceofabig-sizedunreportedsegmentofthe
economyisa-bighandicapinmakingacorrectanalysisand
formulationofrightpoliciesforit.

31. Its time we ACT
VoluntaryDisclosureofIncomeScheme
(VDIS)
Currency
Decreasetaxevasion

32. Its time we ACT
VoluntaryDisclosureofIncomeScheme
(VDIS)
Currency
Decreasetaxevasion

33. So,theultimatequestionis:canweputanendtothisblack
moneymarket,whichisaffectingusbadly.Theunfortunate
answerseemstobe“no”asitwouldrequireanHerculeaneffort
fromallofus,andweareusedtogettingeverythingthe“simple”
way.CorruptionissodeepinoursystemthateveryIndian–from
apoliticiantoarickshawpuller-isapartofitinsomewayorthe
other.However,itisalwaysourchoicetonotbeapartofit.This
simplestep,however,willrequirealotofdeterminationand
courageonourpart.Theonusnowsolelyrestsonus.Areweup
toit?

34. THANK YOU

35. PRESENTED BY:
Abhishek Kumar (061022)
Aneesh Chandran (061058)
Vikas Guleria (061454)
Vishal Malik (061470)