Aspects of the Black Economy

563 Pages·2013·24.36 MB·English

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ASPECTS OF THE
BLACK ECONOMY IN INDIA
Aspects of the
Black Economy in India
REPORT SUBMITTED TO THE MINISTRY OF FINANCE
GOVERNMENT OF INDIA
Shankar N. Acharya & Associates
With Contributions by RJ. Chelliah
NATIONAL INSTITUTE OF
PUBLIC FINANCE AND POLICY
18/2 Satsang Vihar Marg, Special Institutional Area
New Delhi 110067
PROJECT TEAM
Shankar Acharya—Leader
Arun Kumar
A.V.L Narayan
S.P. Chaudhury (Consultant)
RESEARCH ASSISTANCE BY
Diwan Chand
Dilip Mund
Vijaya Khari
Ajay Kumar
COMPUTER SERVICES BY
K.K. Atri
A.K. Halen
Gita Bhatnagar
First Published 1985 by Ministry of Finance, Government of
India
Reprint Edition Published 1986 by National Institute of Public
Finance and Policy
Published by National Institute of Public Finance and Policy, 18/2
Satsang Vihar Marg, Special Institutional Area, New Delhi 110067.
Printed at Aruna Printing Press, B-78, Naraina Industrial Area,
Phase II, New Delhi-110028
FOREWORD TO REPRINT EDITION
The study on Aspects of the Black Economy in India
undertaken by the Institute at the instance of the Central
Board of Direct Taxes, was published by the Ministry of
Finance, Government of India, last year. Reflecting the wide
interest it evoked in the country and abroad, copies ofthe
first edition were exhausted within a short time. The Insti
tute is happy to bring out this reprint edition in response to
demand for copies still coming in from various quarters. It is
hoped that this will also provide access to the report to a
wider readership.
Since this is a reprint, no revision or change has been
carried out in any part ofthe study. However, it needs to be
mentioned that in the Acknowledgement by Dr Shankar
Acharya, the leader ofthe team entrusted with the study, a
reference is made to a more detailed write-up of the work on
sugar to be done by a member of the study team. According
to the original plan ofthe report, this write-up would have
formed Appendix 3 of the report. We regret, for reasons
beyond our control, this write-up is not forthcoming.
It should also be mentioned that Dr Chelliah, the then
Director of the Institute, made substantial contribution in the
form of expansion and modification of the chapter on Policies
which forms Chapter 14 of the report.
We are grateful to the Central Board ofDirect Taxes for
permitting us to bring out this reprint edition of the report.
A BAGCHI
September 1986 Director
PREFACE
The National Institute of Public Finance and Policy is an
autonomous non-profit organisation whose major functions
are to carry out research, undertake consultancy work and
impart training in the area ofpublic finance and policy.
This study was sponsored by the Central Board of Direct
Taxes, Department of Revenue, Ministry ofFinance, Govern
ment of India. The study was begun early in 1983 and was
completed by the end of February, 1985. The report is the
product ofteam work. The study team, whose members are
listed on page iv, worked under the leadership of Dr.
Shankar Acharya, Senior Fellow. The team must be
complimented on the excellent and painstaking work that it
has carried out in such a difficult and treacherous terrain.
In the main body of the report no attempt is made to
arrive at a global estimate ofblack income generation in the
country. This is because the study team felt that within the
limitations of time and resources at iis disposal, the required
data could not be collected and rigorous methodologies could
not be applied to them in respect of each of the major
sectors in whichblack income was considered to be generated.
However, since the report would be incomplete if it did not
contain the results of even a rough estimate ofblack income
generated in India, additional work was carried out whose
results are presented in Chapter 13. This work has been
carried out largely by Shri A V L Narayana and myself. In
doing this we have received assistance from Dr. M Govinda
Rao.
As stated earlier, the report was completed by the end ot
February, 1985; but could not be submitted immediately
because of the delay in reproduction. Meanwhile, the Union
Budget was presented on March 16, 1985. We note that
viti
PREFACE
some of measures we have recommended in Chapter 14 have
been announced in the Budget. Needless to say, our recom
mendations were formulated independently.
The Governing Body of the Institute does not take responsi
bility for any of the views expressed in this report. This
responsibility belongs to the Director and staffofthe Institute,
and more particularly to the authors of the report.
A4 U rno< RJ< CHELLIAH
March 1985 Honorary Director
ACKNOWLEDGEMENTS
This study is the product of a little over two years' work
by a group at the National Institute of Public Finance and
Policy. In any such team effort it is difficult to isolate the
contribution of individual members. However, some attempt
in this direction is nevertheless desirable.
The bulk of the statistical analysis underlying the estimates
of tax-evaded income presented in Chapter 5 has been done
by Shri A.V.L. Narayan. He has also drafted Appendix 1,
which presents details relating to the underlying data and
calculations. Though Shri Narayan only joined the study
team in October 1983, his contribution has been invaluable;
it has included supervision ofthe final stages of production
of the report.
The case studies of tax evasion in sugar and urban real
estate, reported in Chapters 6 and 7 respectively, have been
carried out by Dr. Arun Kumar, with the assistance ofShri
Diwan Chand and Shri Dilip Mund. Chapter 6 is based on
an initial draft by Dr. Kumar, who is currently engaged in
preparing a more detailed write-up of his work on sugar,
which will be submitted later as Appendix 3 to this report.
Chapter 7 is based on background material prepared by
Dr. Kumar.
Chapter 10, which explores the effectiveness of deterrence
provisions relating to income tax evasion, isbased on extensive
background material prepared by Shri S.P. Chaudhury, who
rendered invaluable assistance to the study during his associa
tion with it from July 1983 to July 1984.
In addition to his work on sugar and urban real estate,
Shri Dilip Mund also provided research assistance for several
other chapters of the report. Shri Ajay Kumar and Smt.
Vijaya Khari also helped with research assistance.
x ASPECTS OF THE BLACKECONOMY IN INDIA
For all empirically-oriented chapters, prompt and efficient
computer services were provided by the NIPFP's Computer
Unit, led by Shri K.K. Atri and including Shri A.K. Halen
and Smt. Geeta Bhatnagar.
Very competent typing services were provided by personal
assistants, Kum. Sushila Panjwani and Shri N. Natarajan,
a number of NIPFP's typists, including, most notably, Shri
K.R. Subramanian, Shri Anil Sharma and Kum. Chandra.
Whereas Kum. Panjwani and Shri Natarajan had borne the
brunt of typing preliminary drfts, the burden of typing the
stencilled version has been shouldered by Shri Subramanian.
Shri C. Cecil has contributed welcome assistance in editing
this report.
The NIPFP Library, managed by Shri H.K. Paruthi, has
rendered valuable servicesat all stages ofthe study.
Thanks are due to Shri N. Natarajan, Shri Jagmohan Singh
Rawat, Shri Hira Ballabh Pandey and Shri Puran Chand for
producing the cyclostyled copies ofthe present draft.
A number of professional colleagues at the NIPFP have
contributed valuable suggestions and comments. In particular,
Professor Chelliah has provided constant encouragement and
carefully reviewed the penultimate draft. During the first
half af the study, when "the light at the end of the tunnel"
was often dim, Dr. Amaresh Bagchi provided invaluable
encouragement and advice to buoy the spirits of the study
team. Shri K. Srinivasan could also always be counted upon
for advice and practical assistance whenever difficulties were
encountered.
Outside the NIPFP, thanks are due to the Central Board of
Direct Taxes (CBDT) and various offices of the Income Tax
Department, without whose assistance Chapters 7, 10 and 11
could not have been written in their present form. Special
mention needs to be made ofthe assistance received from
Shri P.S. Bhaskaran who was the CBDT Member (Investi
gation) during the formative stage of this study. Thanks are
due to the Central Statistical Organisation's National Income
Division for useful discussions on sources and methods of
national income accounting. Thanks are also due to the
National Council of Applied Economic Research for making