India Shadow Economy to Shrink to 13.6% of GDP

The “shadow economy” in India will shrink to 13.6% of the GDP by 2025, a study by Association of Chartered Certified Accountants said. Shadow economy refers to the production of and trade in goods and services that are deliberately and often illegally concealed from public authorities.

The report, titled ‘Emerging from the shadows: The shadow economy to 2025’, said the shadow economy in India currently represents 17.22% of GDP, PTI reported.

“This will fall to 13.6% of GDP by 2025. The global average is expected to fall from 22.5% to 21.39% of GDP over the same period,” it noted. The prevalence of shadow economy activity throws up considerable practical and ethical issues for both business and government, Sajid Khan, head of International Development at ACCA, said.

“The fall in the shadow economy is being driven by the increasing health of the overall economy, such as rising employment and GDP growth,” he added. He cautioned that this “success” should not encourage a culture of complacency.

“The overall rate of unemployment will be a significant driver of the shadow economy, as people struggle to access legal, regulated work. In addition there will be challenges created by the rise of new technologies, such as Bitcoin,” he said. Faye Chua, head of Business Insights at ACCA, said the shadow economy presents an enormous challenge for society.

It also presents a huge potential opportunity for chartered accountants to play an active role across the entire value chain from measurement and monitoring through to helping shadow firms and individuals manage their financial affairs and possibly make the transition from informal to formal.

Meanwhile, India early on Saturday introduced its biggest tax reform in the 70 years since independence from British colonial rule. The Goods and Services Tax replaces more than a dozen federal and state levies and unifying a $2 trillion economy and 1.3 billion people into one of the world’s biggest common markets, AAP reported.

The measure is expected to make it easier to do business by simplifying the tax structure and ensuring greater compliance, boosting Prime Minister Narendra Modi’s economic credentials before a planned re-election bid in 2019.

But many businesses are nervous about how the changes will unfold, with smaller ones saying they will get hit by higher tax rates.