Black money may be only 21% of GDP, say economists

A study focusing on tax evasion conducted after demonetisation has found that the size of the shadow economy in the country is not as massive as it has been presumed.

Black money may be only 21% of GDP, say economists

A study focusing on tax evasion conducted after demonetisation has found that the size of the shadow economy in the country is not as massive as it has been presumed.

The study, ‘Cash Holding, Tax Leakage and Estimate of Parallel Economy in India’, has revealed that the proportion of tax-evaded income or ‘black money’ is 21%  of the gross value added (GVA) and not 60 per cent or above as rumoured.

In absolute size, the tax evaded income (potential tax base minus gross total income) has been estimated at Rs 17 lakh crore, Rs 19 lakh crore, and Rs 22 lakh crore for the fiscals 2011-12, 2012-13 and 2013-14 respectively. This is far below the global average of 38%.


The study — done by R. Mohan, a former IRS officer, Dr N. Ramalingam of GIFT, and Dr D. Shyjan of John Mathai Centre, Thrissur — attempted to get a sense of the parallel economy by estimating the potential tax base of the country.

They tried to detect leakages in the two main direct taxes, personal I-T and corporate tax. For this, they used the data on factor incomes in Gross value Added, published by the Central Statistical Organisation.

Factor income shares are incomes paid to labour and capital, which are Compensation to Employees (CE) and Operating Surplus (OS). OS comprises profits, rents, interest and all other income other than wages.

The researchers have been generous with income earners below the exemption limit so as to avoid overestimation. For instance, official figures show that only 15.83% of those who have given their income returns for the assessment year 2014-15 are below the exemption limit of Rs 2.5 lakh.

The study, nonetheless, has assumed that 45 per cent of those receiving CE and 25% of beneficiaries under OS fall below the exemption limit. Calculated together, it means 33% of total income is below taxable limit. Income from agriculture sector, too, has been left out.