Causes of Parallel Economy in India
Causes for Parallel Economy
There are several factors responsible for the emergence – of parallel economy. It would be relevant to discuss those factors so that a correct understanding about the genesis, growth and expansion of black money can be made. The principal factors are:
1. Rigid and Complicated tax & high tax rates implemented by the government- High tax rates and defective tax structure have also been responsible for the existence of black money to a large extent. Take for instance direct taxation. Till recently the tax on income and on wealth was very high to invite evasion. The marginal rate of income tax was as high as 75 per cent. And when it was combined with the tax on wealth, it was still higher. The corporate tax rate too was very high. In these circumstances the temptation / gain from tax evasion was substantial.
2. Quantitative and qualitative Controls and licensing system- The system of controls, permits, quotas and licenses which are associated with misdistributions of the commodities in short supply results in the generation of black money. Since considerable discretionary powers lay in the hands of those who administered controls. This provided them with a scope for corruption – ‘speed money’ for turning a blind eye to the violation of controls. All this gave rise to trading in permits, quotas and licenses, malpractices in distribution and in the process; it generated sizeable sums of black money.
3. Price and distribution controls- Price and distribution controls have in the past led to the generation of black money on a significant scale. Any price control without any adequate machinery of distribution and speedy arrangement for increasing supplies is potentially a source of black money generation.
4. Hawala market as the main cause of black money generation- It is very well known that the international smugglers or the traders in other illicit trade cannot complete their monetary transactions through any nationalized or other private
There are several factors responsible for the emergence – of parallel economy. It would be relevant to discuss those factors so that a correct understanding about the genesis, growth and expansion of black money can be made. The principal factors are:
1. Rigid and Complicated tax & high tax rates implemented by the government- High tax rates and defective tax structure have also been responsible for the existence of black money to a large extent. Take for instance direct taxation. Till recently the tax on income and on wealth was very high to invite evasion. The marginal rate of income tax was as high as 75 per cent. And when it was combined with the tax on wealth, it was still higher. The corporate tax rate too was very high. In these circumstances the temptation / gain from tax evasion was substantial.
2. Quantitative and qualitative Controls and licensing system- The system of controls, permits, quotas and licenses which are associated with misdistributions of the commodities in short supply results in the generation of black money. Since considerable discretionary powers lay in the hands of those who administered controls. This provided them with a scope for corruption – ‘speed money’ for turning a blind eye to the violation of controls. All this gave rise to trading in permits, quotas and licenses, malpractices in distribution and in the process; it generated sizeable sums of black money.
3. Price and distribution controls- Price and distribution controls have in the past led to the generation of black money on a significant scale. Any price control without any adequate machinery of distribution and speedy arrangement for increasing supplies is potentially a source of black money generation.
4. Hawala market as the main cause of black money generation- It is very well known that the international smugglers or the traders in other illicit trade cannot complete their monetary transactions through any nationalized or other private