DMPQ-What do you understand by the term Parallel economy? What are the harmful effects of Parallel economy?

Parallel economy, based on the black money or unaccounted money, is a big menace to the Indian economy. It is also a cause of big loss in the tax-revenues for the government.

We can define black economy as the money that is generated by activities that are kept secret, in the sense that these are not reported to the authorities. As such, this money is also not accounted to the fiscal authorities i.e., taxes are not paid on this money.


Harmful effects of economy:

  1. It led to the misdirection of precious natural resources. A part of black money is kept in a way that contributes nothing to productive activities.
  2. it has enormously worsened the income distribution, and has thereby undermined the fabric of the society.
  3. the black money has eroded the social values of the society. The undeclared income is ‘earned’ by illegitimate ways. This is spent in undesirable and vulgar manner.
  4. the existence of a big-sized unreported segment of the economy is a big handicap in making a correct analysis and formulation of right policies for it. Nor. it is possible to monitor the development in the economy with precision.


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