India’s black economy shrinking – Study

  • Pegging India’s ‘black economy’ at over Rs 30 lakh crore or about 20% of total GDP, a new study says it has been contracting gradually over the years
  • The size of the India’s black economy expanded rapidly over the 1970s & 1980s, but since then had been contracting at a gradual pace o Majority of this black money is locked up in physical assets such as real estate & gold o Physical savings instruments have been historically preferred to financial savings instruments in India bcz purchase of physical assets can be funded using black money, while the purchase of financial assets can not be funded in such a manner due to a strong paper trail o Experts suggest that > 30% of India’s real estate sector is funded by black money
  • The term ‘black economy’ typically refers to the economic activities outside formal banking channels & include cash transactions in high-value assets like gold & real estate
  • Due to various measures taken by the govt to tighten the noose around black money, there has been a clear drop in the prices of land & real estate & a decline in the appetite in gold o Since the new govt assumed power in 2014, there has been a clear step-up in checks around gold transactions & it has become increasingly difficult to park unaccounted cash in the form of jewellery or bullion o The crackdown has also resulted in increase in the preference for cash in physical form & notable decline in the usage of formal banking channels as evinced by the decline in bank deposits as well as usage of debit cards

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