This is a subject that everybody talks about but so far nothing has been done about the most potentially resourceful sector of our economy

 By Khurram Baig
Aug 25 - 31, 1997

The parallel economy or black economy as it is also known, is generally considered to be that area of economic activity, which remains "underground", concealed from the vision and approach of the state authorities responsible for framing economic policies and implementing them. It is usually referred to those perfectly legitimate activities, resulting in transactions either in kind or for payment, between individuals, which are then hidden, from the tax authorities. Activities in the black economy are therefore, primarily undertaken with a view to evading the payment of various direct and indirect taxes, especially the latter.

As the term and definition of the black economy is self-explanatory, obviously one can only estimate the size of the parallel economy, but even conservative estimates are mind-boggling. After having asked a number of analysts, economists and people in the various financial institutions, the figure that keeps popping up is that the parallel economy is easily three times as large as the legitimate or documented economy. While the figure does force us to think and reflect upon the ethical decay in society it also hints at the benefits if this sector of the economy could somehow be documented or channeled. However, the possible benefits of this are not really as significant as most people are led to believe by the estimated size of the parallel economy.

The National Taxation Reform Commission (NTRC) had estimated the tax-evaded money only on the basis of income estimates to be more than Rs 50 billion in 1984-85. According to NTRC, black money at that time was Rs 100 billion. But now according to more recent findings, smuggled goods alone are worth well over Rs 100 billion every year.

What exactly is the black economy?

'Black money" or "black market" or "black economy", gained currency for the first time in British India during the second world war, when the dormant deflationary primitive agrarian economy, known as "coin economy" was assailed by war endeavour.

It was in the year 1942 when Indian port towns were bombed by Japan, causing defence problems, and the "Quit India" agitation by the Congress and other political upheavals caused the Indian economy to undergo a transformation. The coin economy was converted to a currency economy but the terms, black and white were still unknown to the people. This was also the time when the deflationary Indian economy became an inflationary economy, a feature that it has faithfully preserved for fifty years.

Developing countries are not the only ones to be plagued by black economies. The emergence and growth of parallel economies in recent decades in Europe, America, Africa and the rest of the world is appalling. It reveals the growing laxity in human behaviour across the globe. However, as compared to developed countries, developing nations suffer much more as a consequence of large and ever growing parallel economies.

Studies conducted during the 1980s in the US and Europe have confirmed the existence of parallel economies in several advanced countries of the West including the USA, Canada, Germany, France, Sweden, Italy and the former USSR. From the national point of view, the growth of the parallel economy is a highly disturbing development. However in Pakistan a comprehensive survey of the parallel economy has yet to be made although it has expanded substant.