Black Economy India Arun Kumar Pdf Free
NITI Aayog has had its first meeting with the economic experts. This wascrucial since the government is trying to revive economic growth.
Theeconomy has experienced slow growth in spite of the revised nationalincome data that has indicated faster growth. Industry, exports and soon, have shown tepid growth in recent years. The National DemocraticAlliance’s electoral promise of an economic turnaround seems elusive inspite of its accelerating “reforms” by liberalising foreign directinvestment (FDI) flows and land acquisition policies to signal itspro-corporate sector and big business inclinations. The budget is first a macroeconomic exercise and then a micro onecatering to sectors of the economy. Two contradictory macroeconomicviews are emerging from the government and its policy advisers.
This issimilar to the policy dilemma that the United Progressive Alliance facedearlier. The first view is to have a larger fiscal deficit so as toboost demand. The other view is to cut the fiscal deficit to keep thecredit rating agencies (proxy for financial interests) happy so as toprevent a downgrade of the economy. The Finance Minister favours the latter view and argues that a fiscaldeficit imposes a burden on future generations who will have to repaythe debt. This conservative view assumes that resources are constrained,so if the government spends more, the private sector has less to spend.But that cannot be true when the economy has spare capacity and canproduce more. Increased government expenditures then boost the economyand lead to more investments via the accelerator. If increased spendingis financed by increased direct taxation, that is even better.
This isfeasible in India since direct taxes are around 7 per cent of GDP whichis low when compared to most other countries. But a government trying tosignal its pro-business inclination would not wish to raise directtaxes like income, corporation and wealth taxes. Actually, tax rates need not be raised but only the concessions given intaxes (these are called tax expenditures and amount to 4.5 per cent ofGDP) need to be curtailed to get more resources. But this may also beseen as anti-business. The other possibility is to tap the black economy(more than 50 per cent of GDP, according to me.) This requirespolitical will which is not yet visible. The business community, thelargest generator of black incomes, would see this also as anti business— it has been opposing introduction of general anti avoidance rules(GAAR).
Even if the economy grows faster due to the reduction of thesize of the black economy and businessmen gain, they fear it since abird in the hand is worth two in the bush. The NITI Aayog meeting does not seem to have considered these deeperissues.
Advice was sought from former bureaucrats, journalists, industrylobbyists and academics. Media reports suggest a lack of coherence inthe discussion or in the advice given. Some of the invitees had beenpresent in the Finance Ministry pre-budget meeting last month. So, whatwas the point of the meeting now when it did not lead to clarity onlong-term issues? Further, the time for incorporation of policies in thebudget is over since most of it would have been formulated by now. Itmay have been better to circulate for comments a discussion paper on theIndian economy’s slowdown and its global interlinkages. India’s current economic dilemma has global roots.
The eurozone, Japanand Russia are in trouble, the Chinese economy has slowed down and theU.S. Economy is the only big one that has improved. In such a scenario,increasing exports in a big way would be difficult. Declining commodityprices (like that of petroleum goods) signal a weakening global economy.Uncertainty is deepened by the arc of instability due to failingstates, from Afghanistan, Syria, Iraq, Libya, Nigeria to East Africa.The war in Ukraine and the rise of IS are compounding the problem. Greece threatens the economic stability of the eurozone. The newgovernment there is defying the dictates from the world of finance andhas promised to end the austerity regime hoisted on the people ofGreece.
The Greek Prime Minister is telling the European powers that theeconomic rules of integration of the weaker economies of Europe intothe eurozone need change. He is arguing that a substantial portion ofthe debt resulting from the earlier wrong policies needs to be writtenoff. The other troubled economies of Europe — Portugal, Spain and Italy —are under increasing political pressure to follow Greece’s example. President Barack Obama has proposed increasing taxation of the richwhile giving more to the middle classes to reverse the growing inequitythere. This move not only has a political strategy underlying it butalso economic reasons that favour it. Given the Republican domination inthe legislature and their conservative inclinations, it is unlikelythat this proposal would be accepted any time soon. But, other countrieswould be forced to think about the idea, especially in the context ofthe developments in Greece.
These policies promoted shadow banking and all manner of opaquefinancial instruments that created economic instability. A casinoeconomy emerged with speculation leading to a fictitious boost in paperwealth, promoting a false sense of well-being among individuals andincreased consumption by them.
As inequality increased dramatically, andthere was the marginalisation of the vast majority, there followed the“Occupy Wall Street movement”, termed as the “99% v the 1%” and whichalso popularised the term, “Main street versus Wall street”. The dilemma currently facing Indian policymakers reflects these globaltrends.
India’s rightward drift started with the Emergency in 1975 whenSanjay Gandhi marginalised the left of Centre thinking in the IndiraGandhi government. The trend continued during the Janata regime andthereafter under the Indira Gandhi government which had to approach theIMF for adjustment in 1980. Rajiv Gandhi, under considerable influenceof the liberalisers, pushed this tendency faster. With the New EconomicPolicies in 1991 and the emergence of the World Trade Organization (WTO)in 1995, there was a paradigm change, with the policies of financecapital becoming entrenched.
For India, which remains very poor and very unequal, policies based onthe interest of finance capital and a narrow section of society can onlyspell disaster. These policies push markets and technology-basedsolutions which marginalise the individual. The underlying idea is thatif making democracy work is difficult, substitute it with technology.Those lacking faith in democracy and social institutions are (in thename of the poor) pushing an autocratic agenda based on greater use oftechnology. The hard work of creating and nurturing institutions thatcan deliver to the people and strengthen democracy is sought to becircumvented. So, one of the key proposals today is to push Goods andServices Tax (GST) even if it does not suit the needs of the vastunorganised sectors of our economy and benefits the MNCs and bigbusiness. Reflex after effects cracking. The hard work of making taxation simple and effective andshifting to direct taxes is hardly on the agenda. Creating a largenumber of jobs is secondary to cash transfers, bullet trains for theelite and smart cities for the upwardly mobile.
The flyovers of Delhi were built to ensure smooth traffic flow but nowhave speed bumps to slow down vehicles and which leads to jams. Thetechnological solution failed because the institutional design ofmanagement of urban traffic is flawed and that is because policymakersdid not go deeper into the problem in their urge to provide quick fixtechnological solutions. The NITI Aayog could throw light on suchlong-term issues (with solutions that are not just economic ortechnological but also social and political) of strengthening democracy,building institutions, regaining policy space and so on. The Director of the Indian Institute of Technology(IIT), Delhi, has resigned because he was sought to be marginalised by theMinistry of Human Resource Development (HRD).
The faculty and alumni of IIThave come out in his support but the issue festers. Unfortunately, this haslittle to do with the real problem facing IITs — a lack of adequate faculty andlittle cutting-edge research. Even before the indiscriminate expansion of theIITs began, these institutes faced a shortage of faculty; at times to the extentof 40 per cent.
The IITs face a reverse filtration of talent. The best obtain aB.Tech degree and either leave for foreign shores or move on to studymanagement. The second best continue pursuing higher degrees which in turnleads to a weak research programme. Like IIT Delhi, other institutions ofhigher education in the capital have also been in the throes of crisis. Autonomy being erodedThese are not isolated institutional problems. They are generic in nature andcan be found to exist in different degrees in almost all institutions.
Whatplagues Delhi University once prevailed at Jamia Millia Islamia and AligarhMuslim University. A shortage of faculty and the use of ad hoc teachers affectsalmost all universities.The key problems confronting higher education in India are quality, equity,access and financing. In the last 10 years, there has been a massive ad hocexpansion of Central Universities, IITs and Indian Institutes of Managementresulting in a shortage of faculty by 40 to 50 per cent. Established olderinstitutions are doing a bit better but not much since about 33 per cent of thepositions at Delhi University and JNU lie vacant. Shortage by itself does notreflect the extent of the problem since quality of faculty is crucial.Appointment of ad hoc teachers at salaries close to minimum wages and for yearsat a stretch is demoralising and results in a deterioration in quality.Our education system is plagued by the separation of teaching and research.Knowledge is largely acquired through rote learning of notes or reading booksthat are a “cut-and-paste job”.
Thus, understanding is at a discount.Consequently, many Indian intellectuals tend to be “derived intellectuals”,recycling knowledge from the West. Exams are mechanically passed by “muggingup” material which is then promptly forgotten. Knowledge is neither assimilatednor converted into wisdom.
The result is that the system largely producespeople with indifferent quality and where industry complains of a lack ofskills. Some faculty in order to be popular dilutestandards and supervise three or four times the number of research studentsprescribed under University Grants Commission (UGC) norms. There are others whorun non-governmental organisations and institutions outside JNU. The result isa conflict of interest and where academics with little time for researchsupervision allow anything to pass.
There is a lack of leadership at JNU butthis is true of other institutions also where decisions are not made on time. All this is symptomatic of a lack of a vision ofhigher education in the entire system — from the Ministry to the UGC to theinstitutions of higher learning. The Ministry and the UGC expect their diktatto run, little realising that their demands from these institutions may notsuit all. “One size fits all” and “standardisation to achieve standards” isanathema to higher education. Such prescriptions damage the better institutionsas has been the case with the introduction of the mechanical AcademicPerformance Indicator (API)-based recruitment and promotions.
Rather thanensuring quality, this move has led to the emergence of poor quality journals,conferences and so on and the promotion of mediocrity. It is undermining theautonomy of academics which is crucial in fostering accountability to thelong-term interest of society. The HRD Minister’s conclave with thevice-chancellors of the Central Universities in September suggested fundamentalchanges in the running of these universities. Since the Central Universitiesare some of the premier universities in the country, what they do becomes themodel for other universities. Therefore, it is important to know whether whatwas discussed would help resolve the problems of these universities. The samevice-chancellors who created the problems described earlier are now heading thecommittees working on the proposed changes. Apparently, a council of the vice-chancellors ofthe Central Universities, with the Minister of HRD heading it, has beenproposed.
In addition, all the Central Universities are to be brought under acommon Act, there is to be a common curriculum, a teacher’s recruitment board,transferability of students among these universities and so on. If any of thisis implemented, the autonomy of Central Universities will be severely eroded.This was the programme of the United Progressive Alliance government and isperhaps being pursued because the bureaucrats of the Ministry are driving theagenda. Independent intellectuals are seen as beingtroublemakers and are harassed. Mediocre academics, realising that they cannotexcel academically, resort to petty politicking and/or become sycophants ofthose in power in order to climb the ladder. Those at the top take the supportof the latter group and adopt the principle, “show me the face I show you therule” It is this group that violates rules secure in the knowledge that theauthorities will not act against them. They bring a bad name to highereducation and erode the accountability of the institution.
The government has announced a slew of programmeslike ‘Make in India’ which depends heavily on a strong research and developmentcapability which in turn requires a dynamic system of higher education. Theclaim that India has arrived on the world stage rings hollow without anindependent technology base. It is no wonder then that we are forced to borrowtechnology from China for bullet trains or ask the U.S.
To help clean ourcities. The ‘Swachh Bharat’, ‘Clean Ganga’ and other such campaigns requirecitizenship which a democratic and inclusive education system can deliver but apurely formal education system cannot. Unless the crisis in higher education istackled, the government’s best laid plans can be derailed. In brief, higher education in India suffers from alack of a democratic leadership that understands its true nature. Those headingthese institutions are usually the favourites of those in power (political ormoney).
They largely implement the agenda of their masters and, therefore, donot feel the need to be accountable to the academic community. To them,accountability is personal and not institutional or societal. They underminethe autonomy of the democratic bodies of universities, like the academiccouncil through threats and inducements. Some institutions have no unions thatcan balance the autocratic behaviour of their heads. Thus, the erosion of the autonomyand accountability in institutions of higher learning is both from within andwithout. This is the biggest challenge before an India that aspires to arriveon the world stage.
Yusuf Meherally was in the vanguard of India'sstruggle for independence who played a leading role in peasants' organisationsand trade unions. He was imprisoned eight times during the freedom movement.The 'Quit India' slogan coined by him was adopted by Gandhiji for India'sfinal Nationwide campaign for independence.
One of the founders of the CongressSocialist Party, Yusuf Meherally wrote, 'I hate ugliness and cruelty andthat is why I am a socialist. My socialism is based on aesthetic and ethicalpremises and not on Economics.' Inthe words of late Dr. Zakir Hussain, the Vice President of India, 'It wasthe primeval sorrow of Man for what Men do to each other, knowingly orunknowingly, which moved him.' ( www.yusufmeherally.org). It is this philosophy and thegrowing all round inequity in society that made me choose the topic of thistalk. Historically, most societies knownto us have had disparities whether looked at in terms of living standards orother aspects of life.
Earlier, the differentiation between various groups ofpeople was less for many reasons but perhaps above all because there was agreater sense of justice associated with equity due to the higher valueattached with community life which seems to have eroded over time. Atomizationand alienation of individuals are responsible for this decline and led to agreater acceptance of inequity in society. Disparities are of coursemulti-dimensional with political, social, historical, cultural, geographical,economic, etc., factors contributing to them. These reflect themselves indifferences in living conditions (including housing), access to health andeducation, in environmental factors or differentiation in incomes and wealth,etc.
The differentiation may manifest itself in terms of gender, class,community and caste. All this gets embedded in social consciousness and,therefore, inequality takes societal, cultural and civilizational forms.Consequently, inequality becomes difficult to tackle (reduce) or deal with. Present day Indiais characterized by growing inequality (See Graph I ).On the one hand, we have the largest number of poor people in the world and onthe other hand, we have a large number of billionaires. The number ofbillionaires is larger than in many other much richer countries than us. Wealso have the largest number of malnourished and the largest number ofilliterate people in the World.
Inequality across the nation is alsosubstantial with regional disparities growing over time ( Table 1 ). Is equity in society a natural state of affairs? History tells usthat is not so. Equity is a social construct and each society has had its ownideas about it. In India,during the colonial rule, there was not only extreme poverty among the massesbut society had become highly iniquitous with a small well off elite classcreated by the colonial masters to rule the country. After independence in 1947,society strove to not only eliminate poverty but also reduce inequity.Government was given a large role in this and policies were pursued to achievethese ends. The policy paradigm adopted in 1947 had the underlying view that individualsare not responsible for their problems of poverty, illiteracy, ill-health, etc.These were seen to be the result of social processes hence characterized associal problems which had to be solved by the nation as a whole ( Kumar, 2013 ).
These tendencies need to be understoodin a historical context. Societies in the developing world were disrupted by colonization andIndiawas no exception with its colonization beginning around 1750. This left a deepmark on Indian society; its social dynamics was disrupted by the colonialmasters to suit their own ends of control and exploitation. It linked the Indianelite to interest of the foreigner rulers and distanced them from the commonpeople of India.As Macaulay said in his Minutes of 1835 that there was a need for a classintermediate between the rulers and the common people of India. Therewas a hegemonization of the thinking of the Indian elite.
The impact ofdisruption was on every aspect of Indian society. Agriculture, industry,education, etc., were all impacted and the effect persisted after independence( Kumar, 2013 ). Society as a whole lost dynamism. Consequently, the leadership at thetime of independence was enamored of western modernity and wanted to copy itquickly. This bias introduced contradiction in government’s policies with theruling elite in pursuit of western modernity going for a top down model ofdevelopment. This marginalized the vast majority and aggravated inequality.
Thus,while the government paid lip service to the poor and to equity in society, itsoverall policies did not work to reduce inequality in society even thoughspecific policies were supposedly working in favour of the poor. The formerdominated while the latter could not achieve their goals.
The growing black economy underminedall policies – marco and micro – so that general development was set back withconsequent ill effects for the marginalized. Policy failure due to both the topdown approach and the growing black economy was visible from the mid 1960s.This only worsened as the years rolled on with the downgrading of planning andthe failure of the public sector to mobilize resources. The final nail in thecoffin for the state dominated economic policies came with the Iraq crisis in1989. Indiafound itself in a debt trap in 1989 due to its embracing massive consumerism inthe 1980s based on imported goods (especially, petro products). The foreigndebt rose from $10 billion in 1980 to $ 90 billion in 1990.
The crisis starting in 1989 led to ashift in policy paradigm in 1991 to `marketization’ (See Section V). Whilemarkets always existed, marketization was new. The state retreated in favour ofcapital with `market friendly state intervention’. Solutions to problems lay inthe market – removal of poverty, employment, education and health. Individuals hadto accept blame for their own problems and society was largely absolved of itsresponsibility. However, after the collapse of the South East Asian Tigereconomies in 1997, this was called `crony capitalism’ and the World Bankchanged its line to a pure market based growth strategy called `growth at anycost’.
The USeconomy was booming on the back of the asset bubble in the financial markets.The Fed chief, Alan Greenspan, pronounced that `markets are self correcting’and there is no need to intervene in them.(The Age of Turbulence:2007, notsure, but in this book he has presented this ideology as per the sources on theinternet). Government of Indiaalso pursued this strategy and under it, all costs have fallen on the workersand the environment. This has aggravated inequality further. Rising inequity since the mid-1970sis a global phenomenon ( Picketty, 2014). The welfare state put into place after WorldWar II, following Keynesian prescription faced the crisis of stagflation afterthe mid-1960s. Consequently, these policies were largely replaced by theneo-liberal economic paradigm.
Thatcher came to power in 1978 and arguedthat `There is no alternative’ (TINA) and attacked the Trade Unions. Reaganbecame the President of the USA in 1980 and he pushed these policies. Given theweight of these countries in the institutions of global governance, like, the IMFand the World Bank, these institutions also pushed the developing world toadopt more conservative, market based policies which came to be known as theWashington Consensus ( Williamson 1989). Soviet Unionwhich used to help the developing countries balance the pressures from theWestern powers itself started to falter from the mid-1970s due to growinginefficiencies and corruption. From 1980, when Reagan announced the Star Warprogramme, the collapse of the Soviet economy set in. The weight of defenseexpenditure became too much for them to sustain. By the mid-1980s it was clearthat the developing countries would have to deal with the Western powers ontheir own and Indiawas no exception.
Thus, the Western powers were emboldened to introduce the newissues in GATT in the Uruguay Round of negotiations in 1986. The collapse ofthe Soviet bloc in 1989 was sudden and capitalism become dominant.
All important religions and philosophies talk of equality amongpeople. Our Constitution talks of equality of all before law. Why then does itnot come about? People are born equal (except when there are genetic problems) withthe same social potentialities but it is in terms of their social existence,they become unequal. The potentialities of individuals get modified by socialprocesses – where one is born, the social status of the family and so on.
Thesebecome the sources of inequality in society. Even if there are naturaldifferences amongst different people, it depends on society whether they wouldbe treated as equal or if not, how unequal. Equity is a relative idea which specifically recognizes thedifferences amongst individuals. According to principle of equity, equalsshould be treated alike while unequals need to be treated unequally. Forinstance, two individuals with the same level of income should pay the sameamount of tax. Those with different levels of income ought to pay differentamounts of tax.
Arun Kumar Kpmg
How unequal should the treatment of unequals be is for societyto decide. There is no one rule for it since different societies value equitydifferently – some more and others less. Societies are not in a stationary state and are buffeted by newideas and influences from outside so that they keep responding to differentfactors.
Existence of inequity and changes in it are both causes of tensions insociety. Any time there is change in the prevailing level of inequity insociety, there is a build up of tension. Whether it is an increase or adecrease in the prevailing levels of inequity there is resistance from those wholose out.
Both existence of inequity and changes in it can disturb socialharmony. In post independence India, incomerelativities have been disturbed significantly. The nature of the elite changedand businesses started playing a more dominant role. In a democracy, like, in India,those in control of larger numbers also played a significant role and tried toget a larger share of the national pie. The peasantry/ rich farmers fall inthis category.
The judiciary and the executive consisting of the police and thebureaucracy (who were essential to the colonial rulers for their continued holdover the country and hence constituted the elite of the country) slowly lostout to these upcoming groups. There was a reaction to this via theinstrumentality of the black economy. In spite of these limitations, traditionally, economists have principallymeasured disparities in terms of skewdness of incomes. More recently, therehave been attempts to take into account multi-dimensional factors byconstructing indices like, the human development indices but as is usually thecase, they suffer from a certain degree of arbitrariness about the weightsattached to their different components.
Of course, different societies may vieweach factor differently and assign different weights making inter-societycomparisons difficult. Even in income terms, comparisons across nations may bedifficult since the exchange rate used may have a degree of arbitrariness.
The present age is one of selling everything from self to one’sreputation to the Taj Mahal (Bunty and Bubbly style). Advertisers depend oncreating a feeling of dissatisfaction amongst the people and especially theyoung; contentedness amongst individuals is a casualty. Sex and violence areused to sell products and this both commercializes them and also creates a senseof dissatisfaction in people. Hence material progress is disjointed from being happy.Notions of freedom are used to justify any checks on irresponsible advertising.People are posited to be strong and able to discriminate between what is or isnot good for them. However, the entire exercise of advertising is to weakenpeople and catch them at their weakest. Its psychological impact on people, especiallychildren, needs careful analysis. Since 1991, while agriculture grew at about 3.1 per cent per annum, non-agriculturehas grown at around 7.5 per cent.
While agriculture still employs more than 50%of the work force, its GDP share is only 14%. In contrast, the Services sectoremploys 30% of the work force but it contributes more than 60% of the GDP.Thus, those in agriculture are the majority but marginalized in nationalincome. Since agriculture is concentrated in rural areas and services in theurban areas, this disparity is leading to a growing rural-urban divide.Further, since the backward states are predominantly agricultural, they arelagging behind the advanced states which have a dominant contribution to theservices sector.
Finally, since agriculture employs largely unorganized workersthere is a growing divide between the unorganized and the organized sectors ( Kumar, 2007a ). It is accentuating the disparitiesbetween the top 3 per cent (elite) and the bottom 40 per cent broadly thosearound the poverty line.
( Graph II shows thatthe decadal rate of growth was unchanged). The growing disparity is also based on the post 1991 concentrationof resources in the hands of the private corporate sector which is investing inthe organized sector and mostly in the advanced states except recently when itis investing in buying out natural resources. Thus, agriculture is receivinghardly 10% of the investment (for 50% of the work force) and is lagging behindin productivity and wages.
It is hardly generating new jobs ( Kumar, 2005a ). In contrast, the corporate sector isinvesting but in capital intensive activities and is, therefore, shedding jobsin a kind of jobless growth. Consequently, overall, few jobs are beinggenerated and this is resulting in rising under employment. Growing problems of employment generation and rising disparitieshave led to increased political and social instabilities in India. There have been violentprotests against land acquisition for projects and setting up of SEZs. Agitationsfor reservations and affirmative action have often turned violent since thegovernment is seen as non-responsive and pro-corporate sector. Growingcorruption has added to a loss of faith in the government which is seen to beworking against the poor and in favour of the rich and the corrupt.
As mentioned above, data indicate, the process of marketization ofsociety has led to growing economic disparities in India since 1991. The pre existingdisparities have worsened. While economic growth accelerated in the Eightiesand went up from an average rate of growth of 3.7% between 1950/51 to 1980/81to 5.3% in the Eighties, disparities remained in check.
In the Nineties, thisrate of growth was maintained but with rising disparities (Kumar, 2005b). After2001/02, the rate of growth accelerated further to about 8.5% for 5 years butthe disparities increased even faster ( Kumar, 2007a ). Third, the notion of welfare under the markets is based on the ideathat `more is better’ and leads to consumerism.
This leads to demand for higherincomes to enable greater consumption. It justifies consumerism but that leadsto environmental problems which affect the poor more than the well off andaggravate disparities through health effects ( Kumar,2006b ). This principle also implies that sacrifice is stupidity soequity through transfers should be resisted and cannot be considered to bewelfare enhancing. Fourth, the market notion of `letprices prevail’ is used to justify the retreat of the state. Thus, in thelabour market minimum wage laws are diluted and unemployment dole is frownedupon.
Subsidies are considered to be distorting so they need to be withdrawn.This impacts prices of basic goods and the welfare of the poor since they areable to afford less of them. In fact, unemployment is considered to bedesirable as a means of disciplining labour and this accentuates disparities bycausing a downward pressure on wages. Sixth, marketization has led to the notion of people ashomo-economicus and `rational individuals’ working solely to maximize theirprofits. They are atomistic individuals. Optimization has become an importanttool in Economics. There are benefits and losses of every action of economicagents and they optimize their gains to improve their welfare.
There are noabsolutes and everything becomes relative. There is an optimum level of smuggling,tax evasion and so on so the existence of ills of society are justified and needto be tolerated as rational.
Hence principles are less important today. These philosophical changes lead to the acceptance of the idea thatthe poor themselves and not society are responsible for their poverty.
Thismakes inequalities acceptable. In this line of argument, it does not matterthat markets fail and have done so more and more. The ideology of the `freemarket' which helps the better off sections is used to justify their privilegesin society and to further them. The marginalized and the less marketizedsections of the population fall behind due to marketization and resent thischange. Economic growth has come to depend on the actions of the capitalist elite.Mobility of capital has helped it to extract concessions from differentcountries. Thus, taxes in country after country have been lowered in order toattract capital. Labour laws have been diluted across countries for the samereason.
Within different countries too, capital has been able to extractconcessions from society on the ground that it is the source of growth. Beliefin welfare state has been replaced by an exclusivist and elitist model ofdevelopment. Thus, inequality has become the cause of more of it. Democracy has been truncated in countryafter country. During the recent global economic crisis the `Wall Street’dominated over the ` Main Street’and that led to the revolt of the 99% against the 1%. People in country aftercountry have lost their right to choose their path of development. InternationalFinance Capital is deciding that by propagating the notion of market `efficiency’.Thus, national rules are subservient to the global demands of WTO provisions.
India’sfood security or patent laws have to be as per the dictates of global capital. Equity through taxation has beendiluted due to concessions in direct taxes. There has been talk of replacingdirect taxes by VAT or moving from progressive taxation to proportionate taxes.Both these shift the focus of taxation from making post tax income distributionmore equitable to less equitable.
Large concessions on property income had anyway dented the progressivity of taxes on high incomes ( Kumar,2013 ). The number of public goods that generated some equity have alsobeen reduced and now the emphasis is on shifting to the levy of `user charges’for public goods. The growing black economy implies rising illegality and isanti-social. It is currently estimated to be around 50% of GDP in India sois both systematic and systemic. It is concentrated in the hands of 3% ofIndians and results in huge additional inequity which is not captured in data ( Kumar, 1999:75-78 ).
So, in 1995-96, the disparitybetween the top 3% and bottom 40% in the income ladder was 12:1 in the whiteeconomy it became 57:1 if the black economy is included. So, the real disparityin society is a result of the black economy. It makes social action difficultby leading to growing alienation of individuals.
The black economy leads to policy failure and social waste. Itresults in less of tax collection and, therefore, to shortage of resources fordevelopment and lower expenditures on essentials like, health and education.Further, the money sent for development is siphoned out and that makesexpenditures less effective. Consequently, expenditures do not lead tooutcomes. Often due to it, resources are wasted, like, roads are poorly madeand repeatedly repaired rather than new roads built. Thus, the rate of growthis shown to be less than the potential rate of growth by 5% due to theexistence of the black economy ( Kumar, 2005c ).The Indian economy instead of being a $1.8 trillion economy could have been a $14trillion economy this year.
Thus, roughly $12 trillion of development is beingmissed out every year. This is a major cause of the growing inequity.
Globally, black incomes earners are using tax havens to both taketheir capital out of their national territories as well as round trip it backto their countries. The tax havens are also used by the corporate sector tosiphon profits out of the developing countries via transfer pricing or underand over invoicing of exports and imports.
Illicit flow of funds from India hasresulted in loss of opportunity of about $1.2 trillion since 1948. The MNCslike, Amazon, Google, Apple, etc., are taking billions of dollars of profitsout of the USA to Ireland. Leaders of parties do not encourage criticism within parties. Leadershipwhich used to identify with the poor by living simply has given way to onewhich socializes with the rich and copies its style of existence.Parliamentarians with designer clothes, gold and diamond watches and fancy carsare now a common sight. These people when they get to power subvert democracyto make gains.
Even the leadership of the marginalized sections has rapidly gotcorrupted under the influence of this undemocratic politics based on vote bankpolitics. They feel they can only win elections if they have big money and notbecause they have the support of the citizens. The result is unresponsive andunstable politics, a weak democracy and a shift away from the politics ofachieving greater equity in society.
Society has a civilizing aspect and even if there are naturaldifferences among people, they can be overcome because of the potentiality ofsocial thought and social organization. Civilized societies protect their weaksince they recognize the potential of each citizen. Thus, society has to regainits domination and counter growing marketization and atomization. Altruism isbasic to people.
This is being denied in the race for competition. Youth isrobbed of its best years and atomized. Its idealism and energy are largelyturned into cynicism. To conclude, while many factors are responsible for inequality insociety, only some of the important ones have been dealt with in this paper.The historical and international roots have been pointed out and the importanceof marketization, the black economy and some macroeconomic factors have beenhighlighted.
While the market marginalizes the marginal, the failure of the freemarket framework is further accentuating the problems. The large and growing blackeconomy as indicated by the growing levels of corruption is vitiating theproblem of inequity by taking the issue out of the realm of the social. Thus, today while the need topromote equity in society is greater, the predominance of economics over otherdisciplines and the economic system resulting from one-way globalization and thegrowing marketization are marginalizing the quest for equity in India.Even the marginalized social groups that should fight for equity are affectedby these factors and their struggle gets subverted by their leaders. Capitalismis not known to produce equity but this feature has been known to lead to itsperiodic crisis. The present juncture is also one of continuing crisis becauseof rising inequality in society. The Indian ruling elite has made the strugglefor achieving equity irrelevant by ignoring it but they do so at their ownperil.
In 1990-91, according to various estimates, the black economy constituted about 35 per cent of the national economy, which was larger than either its primary or secondary sectors. Since then black income generation has increased not only through both legal (real estate transactions, the share market) and illegal (hawala, financial scams, gold smuggling) activities but also In 1990-91, according to various estimates, the black economy constituted about 35 per cent of the national economy, which was larger than either its primary or secondary sectors. Since then black income generation has increased not only through both legal (real estate transactions, the share market) and illegal (hawala, financial scams, gold smuggling) activities but also via instances of corruption. The New Economic Policies expected to counter its growth have been unsuccessful in containing it. In this empirically rich and finely argued book, Arun Kumar critically examines the standard explanations for the causes and consequences of black income generation and the methods suggested for curbing it. His incisive analysis lays bare the pernicious effects of black income on the macroeconomy and the resultant inefficiency, waste and sub-optimality in the economy and society. It also spotlights the role of criminalization and the emerging nexus of the businessman, politician and bureaucrat in perpetuating the black economy.
Showing the limited success of technical remedies like the VDIS, Arun Kumar argues in favour of structural remedial measures, which include empowering people through a right-to-information act. This revised edition has a foreword by ex-Prime Minister V.P. Singh and new appendices on employment and income in illegal activities in India and money laundering. In 1990-91, according to various estimates, the black economy constituted about 35 per cent of the national economy, which was larger than either its primary or secondary sectors.
Since then black income generation has increased not only through both legal (real estate transactions, the share market) and illegal (hawala, financial scams, gold smuggling) activities but also In 1990-91, according to various estimates, the black economy constituted about 35 per cent of the national economy, which was larger than either its primary or secondary sectors. Since then black income generation has increased not only through both legal (real estate transactions, the share market) and illegal (hawala, financial scams, gold smuggling) activities but also via instances of corruption. The New Economic Policies expected to counter its growth have been unsuccessful in containing it. In this empirically rich and finely argued book, Arun Kumar critically examines the standard explanations for the causes and consequences of black income generation and the methods suggested for curbing it. His incisive analysis lays bare the pernicious effects of black income on the macroeconomy and the resultant inefficiency, waste and sub-optimality in the economy and society. It also spotlights the role of criminalization and the emerging nexus of the businessman, politician and bureaucrat in perpetuating the black economy.
Showing the limited success of technical remedies like the VDIS, Arun Kumar argues in favour of structural remedial measures, which include empowering people through a right-to-information act. This revised edition has a foreword by ex-Prime Minister V.P. Singh and new appendices on employment and income in illegal activities in India and money laundering.