A study by Ambit Capital Research says India’s ‘black economy’ which is over Rs.30 lakh crore or 20 percent of its GDP. Given that India’s GDP in 2016 is expected to be $2.3 trillion, the size of India’s black economy is around $460 billion, a sum that is larger than the stated GDP of emerging markets like Thailand and Argentina.
The term ‘black economy’ typically refers to the economic activities outside formal banking channels and includes cash transactions in assets like gold and real estate. Experts suggest that over 30 percent of India’s real estate sector is funded by black money.
The report says that since the Modi government assumed power there has been a clear step-up in checks around gold transactions, and it has become increasingly difficult to park unaccounted cash in the form of jewellery or bullion. This has led to a drop in the prices of land and real estate and a decline in the appetite for gold.
As banks are unwilling to lend to sub-investment creditors because of their own NPA problems, this credit demand has shifted entirely to informal channels of lending, which in turn has driven an increase in lending rates in the black economy to 34 percent from 24 percent a year ago.