Utilizing Black Economy

This article presents an idea that involves using the vast amount of capital stuck in black economy of India. This idea could very well be extended to other developing nations as well. What is presented here is a broad, general idea that would need extensive fine-tuning if it is to be implemented. However, it is my belief that nations that are facing huge problems of poverty need to indulge in creative policy-making and have a pragmatic approach to solving national problems.

It will be safe to suggest that India and most of the developing countries have widespread corruption that leads to significant amount of capital being hidden from the official economy. Often, this capital is stashed in sofas, converted to gold jewellery or moved to foreign accounts. I would contend that nations must make an effort to tap into this capital and use it for activities that are beneficial to the country.

In order to achieve this goal the government will need to take bold and dynamic steps but the positive outcome emanating from unleashing this untapped resource could be significant.

Step one of this process would involve encouraging and assuaging the individual investors (II’s) to declare the capital for investment purposes. II’s are allowed to create companies/co-operatives/firms or any form of private enterprise wherein various II’s can pool in their funds and invest those funds in government approved sectors of the economy. The Government adopts a "no questions asked" policy towards the source of funding for these firms. These firms are allowed to invest in certain sectors of the economy like developing tourism infrastructure, building affordable housing projects, irrigation schemes and similar economic activities that would otherwise be undertaken by the Government.

The operation, management of these firms is independent of Government interference and they are operated like any profit generating enterprise that seeks to generate capital gains through sound investments. The Government should tax the profits that are generated by these firms, which will be adding onto the tax receipts for the government.

This approach provides two benefits to the II’s. Firstly, they are able to convert their black capital into white and secondly they are able to generate returns on that capital. The return generated will be dependent on the management, operations of the firm that the II has invested in.

As mentioned in the beginning this is a broad general idea that could be a one of the various possibilities in extracting, utilizing and investing black capital into real economy. Overall aim is and should be to uncap the significant black capital that is largely hidden in the country and use it for productive purposes.