India's black money economy estimated at 79% of GDP during 2009-11

The size of the country's black economy has been estimated at 71-79% of the Gross Domestic Product (GDP) during 2009-2011, the studies commissioned by the union government show.

Black incomes were generated in different ways. Tax evasion resulted in generation of 65% of the black income in the country while non-tax corruption methods accounted for 20% of the unaccounted income, reveals one of the three top-secret study reports on black money prepared by three think tanks. In 2011, the finance ministry had asked National Institute of Public Finance and Policy (NIPFP), National Council of Applied Economic Research (NCAER) and National Institute of Financial Management (NIFM) to estimate the amount of black money in the country and outside. The reports were submitted to the Parliamentary Standing Committee on Finance by the government in 2017.

As per the study done by the premier public policy institute NIPFP, the unaccounted income during 2009-2010 was estimated to be at 72% of the GDP.

Another study on unaccounted income as a percentage of GDP done by NCAER shows that the level of black money in the economy was in the range of 71% to 79% of the GDP during 2010-2011. The third study by NIFM, however, puts the black economy estimate at a distant 10% of GDP.

The NIPFP and NIFM studies use the MIMIC method to arrive at the black money estimates, whereas the NCAER makes use of the monetary method to arrive at the black money figures. The tax-related unaccounted income during 2010-2011 was estimated at 65.34% while non-tax corruption related black income was at 19.57%, as per NCAER.

MIMIC or the multiple indicators multiple causes model used widely for estimating black money uses direct tax rates, the regulatory tax burden and per capita income levels as observed variables. The monetary approach is based on the assumption that cash is used to make transactions to avoid detection for tax authority. An increase in the size of the shadow economy will, therefore, increase the demand for currency.

The unaccounted income estimates within India by two institutes NIPFP and NCAER are quite close to each other while NIFM report is a huge variance. The Chief Economic Advisor (CEA) had observed that due to large variations in the percentage of unaccounted income with respect to GDP, there was no scope for arriving at a common estimate of unaccounted income by combining estimates from three reports.

The three institutes had submitted the study reports to the government between December 2013 and August 2014, but the reports were never made public.

Of the total unaccounted money or black wealth, an estimated Rs 9.4-22 lakh crore ($216-498 billion) or 2.8-10% of the black money was stashed abroad during 1980-2010.

NCAER has estimated the unaccounted wealth (stock) at 2.8% of the total unaccounted wealth at around Rs 22 lakh crore ($384-490 billion) during 1980-2010. Black wealth outside the country was 0.2-7.4% of the GDP during 1997-2009, the NIPFP said in its report which didn't estimate the amount.

On the other hand, the NIFM study puts the black money outflows from the country at 10% of the estimated black money or unaccounted income at Rs 9.4 lakh crore ($216 billion) during 1990-2008.

Reacting on the latest reports on black economy, Arun Kumar, a former economics professor at Jawahar Lal University (JNU), said that going by these estimations, black income in the country for the current year can be estimated at Rs 144 lakh crore.

"Even though black money in the economy has been growing, in absence of any new study let us assume it will be the same if not more," said Kumar who has authored Demonetisation & Black Economy.

Pointing out that less than 1% of the black wealth is in cash, Kumar said, "As much as 30-40% of the outflows come back to India through round-tripping. What is available in liquid form is not very large," he said.

"Black income is generated every year through various methods such as under voicing and over voicing, and is invested in different forms such as real estate, gold, jewellery, inventory or taken abroad as flight of capital," he added.

PARALYSING ECONOMY

• Rs 144 lakh crore – Black money estimated for current year
   
• Rs 22 lakh crore – Unaccounted wealth estimated by NCAER during 1980-2010
   
• Rs 9.4 lakh crore – Estimated black money outflows during 1990-2008