Recent estimates put the size of India’s underground economy at somewhere between 25 to 50 percent of GDP. This designation covers a wide variety of industries, but the main culprit is land sales. BBC News takes a look at just how bad the situation has become:
India’s property sector is possibly the worst offender. Barun Mitra, the founder and director of the Delhi-based Liberty Institute, has calculated that all the land transactions, including those related to natural resources like mining, generate $20bn (£12.54bn) to $40bn of illegal money each year.
That equals 1%-2% of the GDP.
High taxes on land sales, disputed ownership of plots, restrictive zoning laws, a shortage of plots large enough for commercial use and, as always in India, a mountain of red tape and corruption—all of this frustrates those looking to buy land though legal channels. The black market operates more efficiently.
There is one point the BBC neglects to mention: the fact that many plots are so small because of India’s tradition of generational division. For much of Indian history, family land has been divided among children such that large estates are slowly divided into smaller and smaller plots. It takes enormous patience and determination for a family to assemble a large tract, or else the task must be carried out by local governments under the Indian equivalent of eminent domain. When that happens, there is often a big gap between what the state pays landowners and what it gets from the purchaser, with officials and parties often getting a cut.
Finally, in much of India peasants are tenant farmers. The landlord can sell the land, but tenants will fight the loss of their homes and livelihoods tooth and nail and demand compensation. Again, there are many opportunities here for corruption.
But the problem with these land issues isn’t just that they create a black market; they’re also dramatically slowing India’s growth.