Indian shadow economy set to shrink by 2025, finds ACCA

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Mumbai: India is on course to reduce the size of its ‘shadow economy’ — the production of and trade in legal goods and services that are deliberately and often illegally concealed from public authorities — by 2025, according to a new study from the Association of Chartered Certified Accountants (ACCA).

‘Emerging from the shadows: the shadow economy to 2025’, the recent report by ACCA estimates that the shadow economy in India currently represents 17.22% of GDP – which would have totalled an approximate Rs 26,158 bn in 2016. This will fall to 13.6 per cent of GDP by 2025. The global average is expected to fall from 22.5% to 21.39% of GDP over the same period.

“The prevalence of shadow economy activity throws up considerable practical and ethical issues for both business and government,” said Md. Sajid Khan, Head of International Development at ACCA. “The fall in the shadow economy’s overall share of the India is a very positive sign that government and business are undertaking significant efforts to curb its impact. 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 adds, “Yet this success should not encourage a culture of complacency. The overall rate of unemployment will have 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.”

Faye Chua, Head of Business Insights at ACCA says, “The shadow economy presents an enormous challenge for society and a huge potential opportunity for the profession 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.

“Effective management of the shadow economy requires action at all levels – government, cities, local communities and individuals.”