chapter  3
10 Pages

The Parallel Economy

ByS. K. Ray

This chapter analyzes the effects of black money and its repercussions on the economy, in order to determine how the parallel economy distorts the functioning of the official economy. Nicholas Kaldor made his calculations in the background of the possible magnitude of evasion of public finance through a comparison of national income estimates to income tax assessments. An analysis of the margin between Kaldor's estimate of assessable income and the actual figures of assessed income did provide an indication of the order of evasion, and this gave Kaldor an idea of the extensiveness of black money. In the course of his investigations, Kaldor had extensive discussions with businessmen, accountants, company directors, government executives, revenue officials and economists. The Direct Taxes Administration Enquiry Committee, appointed by the Indian federal government however concluded that Kaldor's estimates were on the high side. In the deliberations of the Direct Taxes Enquiry Committee, an intricate interlinking has been established between tax evasion and black money.