India makes it more difficult to deal in black money

A report by Ambit Capital estimates India’s black economy to be around 20 percent of India’s GDP

GN Bureau | June 6, 2016


#Modi   #Ambit Capital   #Black money  


The Modi government’s crackdown on black money has “jammed” traditional black money laundering machines in the country, resulting in an increase in preference for cash and a decline in the usage of formal banking channels. This was highlighted in a report titled ‘The unintended consequences of India’s battle with black money’, prepared by Ambit Capital.

The report, however, adds that “this crackdown has also led to an increase in the cost of debt capital in the economy owing to a confluence of certain unique factors. As banks are unwilling to lend to sub-investment grade creditors owing to their own NPA [non-performing asset] troubles, this credit demand has shifted entirely to informal channels of lending. This, in turn, has driven increase in lending rates in the black economy to as high as ~34% p.a. as per our primary data sources (vs ~24% a year ago).”

According to the report, as of today, India’s black economy is equivalent to 20% of the size of India’s GDP. “Given that India’s GDP in CY16 is expected to be US$2.3tn, the size of India’s black economy is about S$460bn, which is larger than the stated GDP of emerging markets like Thailand or Argentina.”

“Even as India is characterised by a high savings rate of 33% of GDP, India has a high cost of debt capital and poor accessibility to capital mainly because more than two-thirds of India’s household savings are held in physical form, which includes real estate and gold,” says the report.

The report is also of the view that given that liquidity in the formal banking system is likely to remain under pressure and the cost of borrowing in the black economy appears to be rising, GDP growth is expected to remain flat at 6.8% in FY17.

Here's the full report

Also read our previous stories on black money: Plug the loopholes and get back black money

India still in the dark on black money

Comments

 

Other News

Israel-Palestine War: Lessons from Past Peace Efforts

Israel-Palestine War: Give Peace a Chance By Dr. Joseph K. Thomas IndiePress, 243 pages, Rs 399 T

How inner work helps subvert painful narratives

Unashamed By Neha Bhat HarperCollins, 240 pages, Rs 499   * How do I connect better with my partner? *&nbs

Heatwave spikes power demand: measures taken to ensure supply

The Northern Region has been experiencing high power demand conditions due to a prevailing heat wave since May 17. Despite these challenging conditions, the highest ever peak demand of 89 GW in the Northern Region was successfully met on June 17. This achievement was made possible by import

PM to release 17th installment of PM-KISAN at Varanasi on Tuesday

Prime minister Narendra Modi will release the 17th instalment of the PM-KISAN scheme on Tuesday at Varanasi and more than 9.26 crore farmers will receive the benefits amounting to over Rs.20,000 crore. The PM will also distribute the certificates to more than 30,000 SHGs trained as Krishi Sakhis to work as

Taming turbulence in Indian aviation

The booming Indian aviation industry, among the fastest growing sectors in the world, is projected to be valued at $40 billion by 2027. But, despite robust demand for air travel across the country, more than 50 airlines have closed down in the last decade in India and most private airlines have closed with

PM Modi leaves for G7 Summit in Italy

In his first foreign visit after taking oath of office for the third time, prime minister Narendra Modi Thursday evening left for Italy to participate in the G7 Outreach Summit. “At the invitation of Prime Minister Giorgia Meloni, I am travelling to Apulia region in Italy to participat

Visionary Talk: Amitabh Gupta, Pune Police Commissioner with Kailashnath Adhikari, MD, Governance Now


Archives

Current Issue

Opinion

Facebook Twitter Google Plus Linkedin Subscribe Newsletter

Twitter