The underground economy

Abstract

The underground economy in developing countries is all pervasive, affecting the daily life of the citizens, who end up paying a higher price for many of the goods or services purchased, either due to corruption or due to poor quality or a black premium. The loss is not restricted to only money, but also extends to the experience itself, as the common man is subjected to harassment due to delays, harassment and tension involved while dealing with many institutions. The causes of the ballooning black economy lie in an increasingly illegal and criminalized political process, in the service of private accumulation: a nexus in which politicians, officials, criminals, and businessmen and their ‘runners’ and fixers are bound together in a mutually protective embrace. These are the real forms of ‘collective action’ that dominate much of the economy, a development catalyzed by the liberalizing economic reforms of the 1990s. In this study, I have looked at the major ways in which the black incomes are generated, the means in which they are “whitened”, and also, the sectoral, systemic and macro consequences of the presence of the underground economy. The process of money laundering has been looked at in detail, due to the impact it has on economies across the world. Also, the use of hawala as a means of transport of black incomes has been perused. Towards the end, the remedies possible to check the generation of black money by cutting the linkages of the triad formed by the politicians, bureaucrats and businessmen have been explored. The learnings that I derived from interactions with people who have been dealing with many aspects of the underground economy have been integrated with the theoretical lessons to create this report.