For every registered business in India, there are 127 unregistered businesses, according to a new study. This means they do not pay tax and operate in a shadow economy where businesses are outside the reach of government authorities.
For every 100,000 working age population, the number of formal entrepreneurs in India is 6, whereas the number of informal entrepreneurs is 764, the study by Imperial College Business school estimated.
After Indonesia, India has the second highest rate of shadow entrepreneurs, said the study by Professor Erkko Autio and Dr Kun Fu from Imperial College Business School which combined data from Global Entrepreneurship Monitor (GEM) and the World Bank.
Though many shadow entrepreneurs offer legal services, they do not file their business documents with government officials. They prefer to remain off the books to avoid entering into a transaction with the democratic institutions.
Many experts argue that the shadow economy is a huge loss to the government exchequer and are keen to implement measures to bring them into the formal model.
Last year, the government announced its plan to cross-check bank and credit-card records with tax submissions. It also commissioned a series of studies into black money that are due in the next few months.
Bundling the entire shadow economy under the pandemic of black money would be far fetched. These are clearly two different issues.
It would be foolish to expect a magic pill to solve all our troubles but we can start by improving the quality of our economic institutions and reduce the hassles of getting a business registered and running on a continual basis.
The more we look at shadow economy as a deficit in the capabilities of government institutions and take steps to address those deficits, the better off we will be.
Earlier this month, World Bank had ranked India 134th in their Ease of Doing Business report.
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