What is Shadow Economy:
Shadow economy Of India refers to black money fueled economy which helps in evading tax and scrutiny. According to a 2015 report from PwC, 98 percent of all transactions by volume happen in cash. 68 percent of the total value of transactions are conducted in cash. Because of the vast amount of cash transactions, Black money market, Hawala trade, illegal weapons trade are easily facilitated.
In India, there are three types on business in common man’s language:
- Number 1 ka business: These business pay tax and are legal
- Number 2 ka business: These are legal business but they evade tax, or pay less tax by showing less income
- Number 3 and 4 ka business: Completely illegal businesses like Hawala trade, middle man earning through corruption only, whose business records are never captured and these business do no even exist on paper.
Cash based economy of India is one of the main factor for fueling third category of business, Number 3 and 4 ka business. If we can help in curbing this category, then alone much of the economy will be profited.
How Demonetization helped?
With 50 days period given by Modi Government coming to end, it is now wondered how will India move forward. Has demonetization move been effective is moving people toward cashless transactions? Or as the paper cash increases in circulation in market, people will fall back to their earlier comfort zone: Using cash.
Demonetization is great opportunity for common man to help in curbing corruption. By doing nothing great, just by making transactions cashless. Whenever you go to any doctor, grocery shop, barbers, hail cabs, chemists, electronics repair shop in your vicinity, try to give them cashless money in the form of cheques, paytm, or card payment. This move will help in regulating their actual earnings. Often people pay by cash, so actual earning of any shopkeeper can be hidden, there by helping in less/no tax payment. There are still very less people may be 5% who take receipts for the services availed.
If you look around yourselves, you will see numerous people who are doing small business but their profit margin is high and they do not pay tax at all. This is how even Chai wala is more richer than tax paying citizens. Many shop vendors, vegetable vendors have started accepting digital money. This is like wave, if you insist on doing cashless transactions on every possible opportunity, more transactions will be recorded. More people will be accounted and prompted to pay tax.
Key Resistance towards cashless transactions:
In Tier II and Tier III cities,Mobile shops, Garments store, Footwear stores, even vegetable vendors are accepting cashless payments.Local Chemists, sweet shops and Grocery shops have been showing resistance in accepting Cashless transactions. A source revealed that, profit margin is very high for above said shop categories, they deal in cash to evade tax and do not show real income anywhere.
Recently, I saw a tele-series Bhabhi Ji Ghar Pe Hain’s demonetization episode. There the character was an honest business man, but he still had black money because he was not paying tax. He was saying that “Mehenat ki kamain h wo meri, kaise de do sarkar ko”. It should be realized that Government has right to collect tax. You should declare your true income and help in country’s progress.
Rural and sub-urban areas are also catching up cashless wave. Due to lack of funds in village banks, people have to go digital to survive. But resistance is also very high in these areas. People may be using smartphones boasting of 3G network, they do not want to change old habits.
Long-Term Future of Digitization:
Currently, government is offering various discounts on digital payments like on LIC policy, insurance policies, petrol pumps, railway tickets. But what will happen once these discounts are taken back? Initially, this move nudge people towards digital transactions, but if these discounts are taken back they people may also fall back to cash transactions. Cash transactions are simple, habitual and safe for them.
So, it is moral responsibility of people to continue digital transactions. This may be easy for salaried people whose salary come directly in bank. But for daily wage earners and small shop workers, this is not possible.
Government transactions be made digital: Government has already started moving forward in this aspect. Is is proposed to convert majority of government departments in Digital mode. This will help increase transparency and curb corruption to large extent. Majority of corruption in government office is due to this chain of getting file to actual senior officer.a;most all middle man demand black money to forward file on time. If whole process is done digitally, corruption will definitely reduce.
If some norms come, forcing more employers to pay salaries digitally, then some change can be expected. Digital knowledge need to be given to illiterate people as well as general public. Only knowledge and awareness can help them in moving towards digital money.