How the Black Economy Grew in Post-Independence India

07 February 2017

Arun Kumar is an eminent economist who has been studying the black economy in India for close to four decades. His 1999 book The Black Economy in India is among the foremost accounts of the black-money problem in the country. 

In Understanding the Black Economy and Black Money in India: An Enquiry into Causes, Consequences and Remedies, released in February 2017, Kumar discusses the misconceptions around black money, the growth of the black economy and remedies to curtail it. “Suffice it to say that the demonetization has had little effect on the problem of the black economy,” he writes in the introduction to the book.  In the following extract from the book, Kumar explains the origin and growth of the black economy—a parallel or illegal economy, which encourages the rise of black money—after 1947. Kumar contends that this economy remains unaffected by demonetisation, and contributes to making socio-economic policies less effective. 

Independent India started with high aspirations but a weak democracy because the power was transferred from the colonial masters to a relatively unaccountable political class and a civil service that was accountable mostly to the ruling elite. As the democratic aspirations of the national movement weakened, the political class became more corrupt. The government of India report of 1956 argued for the need to keep the black economy in check so that more resources could be raised for development. It found businesses generating profits from black market activities in all sectors of the economy.

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    Arun Kumar is the Malcolm Adiseshiah Chair Professor at the Institute of Social Sciences, and was formerly a professor of economics at Jawaharlal Nehru University. He is the author of Demonetization and the Black Economy, and the forthcoming Ground Scorching Tax, both published by Penguin India.

    Keywords: economy business growth crime black money Black income Indian economy Gold