Yes! I am talking about the Indian economy. Back in 1991, India’s forex reserve woes piled up and revealed the worst where it could only import supplies for 2 weeks. But now the Indian economy is ranked as the 7th largest economy in the world, third in terms of purchasing power parity and the fastest growing economy in the world. Indian economy is known as a ‘phoenix bird’ for showcasing immense strength to overcome the subprime crisis which crashed all strong economies in the world.

The central bank of India (RBI) played a prominent role to overcome the crisis. But more than that what actually saved the ‘naughtiest’ economy was its naughtiness itself. Indian economy faces many problems and black money ranks #1 among all those problems.

The same villain “Black money” saved the Indian economy!

In India when a property, land or house is bought, the buyer pays a portion of the price legally and the remaining portion illegally. That means if a property is worth Rs 200,000, the buyer and seller will agree that Rs 100,000 will be paid as a ‘formal’ payment and rest in cash ‘informally’ (as per sale deed the exchange value is Rs 100,000). This helps the seller to escape from paying tax for capital gain as well as the buyer to pay less property tax.

This practice saved Indian economy when people approach banks for loan, they give property actually worth Rs 200,000 as security which has sale deed value of Rs 100,000 and they receive roughly around Rs 80,000 loan from bank. End of the day banks are lending much less in value when compared to the actual value of what they acquire as security. What happened in other countries was exactly opposite, less security more loan.

 

Source: ‘An Economist in the Real World’, Kaushik Basu


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