Indian Black Economy

The Indian black economy is immense, lucrative, widespread, and has grown significantly since independence.The black economy has grown from about 3% in the mid-50s to 20% by 1980, to 35% by 1990, and 40% by 1995. As a percentage of GDP and at almost $1 trillion in absolute terms, the black economy is larger than both the industrial and agricultural sectors. Corruption is pervasive from the lowest to the highest levels of public administration, public enterprise, bureaucracy, judiciary, law enforcement, and elected officials. According to Transparency International’s Global Corruption Barometer 2007 report, 25% of survey respondents had to pay a bribe to obtain government services, over four-out-of-five believe that political parties are corrupt, and more than 70% expect the level of corruption to increase in the coming three years.

Corruption

History of Corruption

The history of corruption in India can be traced to late 18th century British East India company rule. The first governor-general of India, Warren Hastings was notably impeached on accounts of corruption in 1787. Though he was acquitted in 1795, his lengthy trial brought various aspects of illegitimate company activity to light. Brian Smith of Georgetown University (2008) writes, "too much ill-gotten wealth had made its way home from India; too many of Hastings' compatriots and defenders were in the House of Commons". The East India Company laid the foundations of both a corrupt bureaucracy and a parallel economy. During World War II, this black economy experienced a surge . When large quantities of products and resources were allocated to the war effort, the general public experienced acute shortages of daily necessities. Scarcity, government controls, and private hoarding stimulated the growth of the parallel economy. Even though in both periods the black economy made up only a small fraction of its present size, the institutional and social practices that would facilitate its rise were developed then.

Today, corruption pervades the political leadership, the bureaucracy, law enforcement and the judiciary. Some of the most prominent causes have been patron-client relationships and communalism in the democracy, excessive bureaucratic administration and low wages at the bottom rung of public sector employment, ineffective punitive and combative measures, and a social environment conducive to corrupt practices.

Bribery