Economic slowdown? There’s no such thing, not in India at least. While the world’s financial leaders sat amidst the ruins of their corporations Indian business continued much as before, even showing slight increase in some sectors. Statistics show that India’s economic slowdown managed to ease and become non existent during the first quarter itself, contrary to expectations and despite the slide in manufacturing and job availability. The Indian economy grew 5.8 percent from a year earlier in the first three months of 2009 and finance, insurance and real estate expanded by 9.5 percent in the January-March quarter, faster than the 8.3 percent growth clocked in the previous quarter. This is because India’s main industries and major money sectors such as real estate managed to buoy the economy, even making progress amidst sluggish world economies. The secret to their magnificent maneuvering of difficult times however is no compliment to our economy. In fact it is just the opposite for it is the robust black economy of India which has kept our industry from getting its feet wet.
An India development report, the latest study of the black market undertaken by the Indira Gandhi Institute of Development Research (IGIDR) in 1999-2000 estimated the total amount of black money in the country to be Rs 3, 54,000 crore in 1999 when India’s GDP was Rs 17, 70,000, making it 20 percent of the GDP. However this is merely the official report. Economists estimate black money to comprise almost half of the Indian economy now, their hypothesis stemming from the fact that the black money component in real estate transactions are a fairly accurate indication of the black money present in the economy, and the component is currently around 50-6o percent.
Black money enters the system for a variety of reasons, of which corruption is not an insignificant part. However quite a bit a black money is pooled in due to evasion of taxes, levies, excises and duties on the part of major manufacturing, road transport and other companies. Cash transactions, which are again unaccounted for money, make up almost half of current financial dealings, especially in the real estate, electronic goods and transportation departments. The film industry is a regular boost to the parallel economy as are personal incomes and the various illegal industries. Even the recent elections greatly benefited the black economy, since each election produces between 10.99 billion to11.33 billion dollars of black money, as shown by a study conducted by the CMIE (Centre for Monitoring Indian Economy) in 2006. In other words our Black economy is thriving. However, this may not be a bad thing.
It is in difficult times when legal business earns a low return or the white economy slows down, that the cash economy can greatly turn the table and steady the situation. As a result of the global crash, cash transactions are on the rise, with certain sectors such as real estate even forcing buyers to deal in black money when their sources are in fact legitimate. The currency holding by people has also seen a tremendous rise, as revealed by Reserve Bank of India data, and is a direct proof of the rising cash market. Since the credit market has deteriorated, cash transactions are growing by over 30 percent and are taking hold of the economy, this change also effectively keeping the economy afloat. Commercial dealings have reverted to cash, even in case of ordinary home purchase, and as a result, even the sale of luxury items such as expensive electronic home goods has seen an improvement, as revealed by the continued growth in high end consumer durables like the LG Electronics spurt in sale of LCDs.
Black money suddenly ceased looking so black, and came as a boon to our economy. It effectively cushioned the economic crisis, simply because transactions being mainly conducted through cash, the downturn has affected only the black money which was unaccounted to begin with. A perfect example of this would be the home mortgage crisis which so severely afflicted the USA but left India unscathed. Since real estate dealings are done largely with black money on which no loans can be obtained and which cannot affect the sub-prime market, the crash in land prices did not majorly cripple our white economy.
The black market has always been posited as a problem, but now it has suddenly become a solution. While this in no way excuses the disgracefully flagrant black economy, it can at least be a reason to delay the curing of the economy. Black money need must be evicted from the system, if only to end this ridiculously embarrassing situation where the government is forced to be grateful for it. However one can hardly blame the citizens for muttering a short lived but fervent prayer of thanks for this malignant factor which saved the livelihood of many.