Black Economy Effects

"What is known to exist but is not visible is surrounded by mystery."-Arun Kumar
The black economy is such a mystery where we don't have clear pictures of it, but something which has to be brought under control soon due to the harmful impacts of this phenomenon in the economy. Hence, this paper discusses the various methods adopted by different economists to estimate the size of black economy which make the governance of a nation easy and successful.
Black economy has become a matter of grave concern due to its deleterious effects on the nation. Difficulty in policy making, complications in obtaining proper data leading to policy failures- the consequences of existence of the black economy is -------------.The other after effects include macroeconomic

The different connotations with which it is being addressed itself shows the fact that there is no uniform definition for it in the economic theory. It is called by several names like unaccounted income, black income, dirty money, black money, underground wealth, parallel economy, shadow economy or unofficial economy. However, all these terms usually refer to the part of country's economic activity which is unrecorded or untaxed by the government or income on which the taxes are imposed by government or public authorities but have not been paid. Such wealth may consist of income generated from legitimate activities or illegitimate activities which fall outside of the country's rules and regulations regarding commerce like smuggling, illicit trade in banned substances, counterfeit currency, arms trafficking, terrorism and corruption. Hence, the growing size of black economy is also a sign of the tremendous growth of these illegal activities.
Hence, measuring the size of black economy is important. With no proper data available, it is very difficult to estimate the size of the black economy. Neither there are any reliable estimates of black money generation nor any uniformly accepted methodology to measure its size. Different economists used different approaches for the estimation. Some of the main approaches

So, it is also called Currency Demand Approach. It assumes that the unaccounted section of the economy works mainly through cash, hence, the velocity of money is the same between accounted and unaccounted segments. An estimate of money circulated annually can be obtained from the estimate of the velocity of the money. Therefore, this can be compared with the income captured by the National Accounting System(NAS) to get the estimate of black income.

One major drawback of monetary approach is that it is not always true to assume that NAS represents the accounted income accurately. Income generated from unorganized sector like agriculture constitute large proportion of national income in India, and these are not accurately recorded by NAS always leading to bias in the estimation of black income through monetary approach. Also, the assumption that unaccounted economy works primarily through cash is not true these days since a major share of transactions in black economy is carried out through ---------

Estimates by Gupta and