The Illegal Economy in India

An argumentative analysis of radical altercations brought by globalization to the illegal economy of the world's largest democracy.


This essay explains differences between the illegal and unreported economy and examines the role black money places in making these systems work. By taking a broad historical analysis of the Indian economy's development, one is able to better understand how globalization has impacted those who now operate in the darkest corners of the economy.




Re-writing the Rules

Illegal economic undertakings have accompanied economic progress throughout the entirety of human history. Evidence of illicit criminal activities has existed in records of the modern economic system since the inception of economic reporting. These illegitimate transactions constitute what economists now refer to as the “black market”. Broadly defined, the black market is the, “economic activity that takes place outside government sanctioned channels usually, so participants avoid government price controls or taxes. Highly controlled and illegal substances or products are traded here.”[1] Illegitimate economic schemes disrupt economic progression because unrecorded transactions are exempt from government taxes or regulation. Nations with weak economic fundamentals and strict currency control (high inflation and low currency reserves) most risk developing potent black-market channels. This explains why, currently, black markets flourish in countries such as Argentina, Iran and Venezuela – countries presently experiencing economic and political turmoil. There are many different types of underground economies which pertain to certain illegal practices, most notably the illegal economy and the unreported economy. The unreported economy describes individuals or businesses which “evade institutionally established fiscal rules”,[2] and the illegal economy refers to, “participants engaged in the production and distribution of prohibited goods and services.”[3] Globalization has radically altered both market types and are fascinatingly exemplified through the growing international role of the Indian economy.

Globalization produced a modified Indian black market characterized by both the illegal economy, illustrated by the Munger gun trade, and the unreported economy, demonstrated by tax evasion networks and illegal foreign bank deposits of “black money”. India exists as a rising global economy in an Information Age, which is described by the author Manuel Castells as the,

"Historical period in which human societies perform their activities in a technological paradigm constituted around microelectronics-based information/ communication technologies, and genetic engineering." [4]

The Information Age has manifested a social structure which describes human social organization in relationships of production and consumption or experience and power. Identified as the ‘network society’, this civic arrangement is accompanied by a retreat of the political society, thus aggravating the relationship between ruling authorities and low socio-economic populace. Exacerbating differences between populations and citizens, globalization has created a localized process of black-market activity throughout India. Aided by the flow of black money, a monetary term which will be discussed later in the essay, the Indian black market reflects the implications of globalization. Via the black money market, the illegal and unreported economies of India thrive in a globalized network where state regulation is exceedingly difficult, and is actualized by daily, localizing processes involving India’s citizens and populations cooperating in various scapes, creating flows and frictions of illegal commodities.

With aspirations of becoming a professional athlete Munna Shukla, 35, was born into a poor farming family. Now, from wealth generated through government connections, Shukla is known as a Baahubali – a person tied with local, corrupt politicians and bureaucrats who perform specific ‘odd jobs’ and employs cops and other thugs on a listed payroll. Currently, Shukla is under investigation from state police for his alleged connection to the gun smuggling trade in Munger.[5] Under the Arms Act, 1959, the Parliament of India lists fully automatic weapons, including the weapon primarily traded in the Munger gun ring, the AK-47, under prohibited bore. Chapter II, Article 5 of the Arms Act stipulates, “non-licensed manufacturing, sell, transfer, repair, test or conversion of unlisted firearms is prohibited.”[6] The transfer of unlicensed firearms from Munger is evidence of an illegal black-market economic practice and reflects the localizing processes of globalization.

Located in the state of Bihar, Munger has been a historic seat of power in the northeastern geographic region of India since the 18th century. Munger became a capital after Mir Kasim, the Nawab of Bengal (a position of Muslim rulership in the present states of Bengal and Bihar), relocated the capital from Murshidabad in the 1760’s. After numerous conflicts with the British, Mir Kasim was defeated in the 1764 Battle of Buxar. This conflict occurred towards the end of the Seven Years War and is considered the last opportunity India had to circumvent Britain’s growing colonial power in the northeast. After falling fully under the authority of British colonial rule, Munger was transformed into a hub of weapons and arsenal manufacturing. This process exemplifies the historical narrative which author Sven Beckert identifies as Europeans’, “ability and willingness to project capital and power across vast oceans.”[7] The Eurocentric maritime trade web was created from armed trade practices. While not a free-market capitalist economic system, this ‘web’ paved the way for a globally connected trade network with capitalistic characteristics and began the initial steps towards the industrial revolution. The arms necessary for said colonialist trade practices were manufactured and localized in spaces such as Munger.

Currently, of the 60-gun manufacturing factories in India, 36 units are located in Munger. According to the reporter B. Vijay Murty, retired armorers, state policemen, government schoolteachers, Indian national army soldiers, shopkeepers and approximately 35 other smugglers were arrested in Munger during a 2018 smuggling raid.[8] The localization process of the Munger gun ring is understood in a global context by the arguments of Saskia Sassen, who explains,

"We are beginning to understand that there are processes that do not necessarily scale at the global level as such yet are part of globalization. These processes can take place deep inside territories and institutional domains historically constructed as nation in much, though by no means all, of the world. Localized in national and subnational settings, these processes are part of globalization in that they insert localities in global production, organizational, cultural, social or political processes; or involve transboundary networks and entities connecting multiple local or ‘national’ processes and actors" [9]

Geographic scopes of economic and political localities contribute significantly to the overall global narrative. Individuals in local settings, or places where the outside world remains remote – such as Munger, are increasingly confronted with global influences and presences, and can choose their participation in the global as well as the degree to which they participate.

Another intriguing facet of the Munger gun ring is the diverse socio-economic and political involvement connected to its illegal economy. From corrupt police officers and political bureaucrats to former arms manufacturers and impoverished rural farmers, such as Munna Shukla, the illicit contraband market impacts every level of Indian society. Academic Partha Chatterjee how current urban elites are adopting British colonial practices in their control and administration of Indian cities. This dynamic creates a distinct relationship between two civic populations in India: citizens and populations. Chatterjee writes,

"Populations are empirical categories of people with specific social or economic attributes that are relevant for the administration of developmental or welfare policies,” while citizens carry the, “moral connotation of sharing in the sovereignty of the state and hence of claiming rights in relation to the state" [10]

In sum, populations are a governmentally classified populace who lack the ability to claim, “rights in relation to the state”. Looked down upon by their citizen counterparts, those who do lay claim to state’s rights, these populations are seen by governmental agencies as groups to potentially grant, depending upon the costs and benefits of the expected economic, political and social outcomes, favorable state benefits. However, the illegal arms dealings in Munger, occurring between both citizens and populations, reveals that local settings in a globalized world may refute the social theories posed by Chatterjee. In the Munger arms ring, the contrasting definitions between citizens and populations are not as mutually exclusive as Chatterjee describes. In fact, as Chatterjee later notes, since the retreat of the political society in India beginning in the 1980’s, there has existed a, “field of continuous negotiation between the authorities and the populations group.”9 Munger demonstrates how “continuous negotiation” between citizens and populations, with aid from an increasingly global India, has morphed into something with far deeper implications - continuous cooperation.

Blaming, “politicians, poverty and the lack of development in Munger for the people turning towards crime”,[11] Shukla explains that any AK-47, or Chinese gun, can be replicated and handmade by Munger workers. Munger contraband experiences material flows regionally throughout India, and, evidence suggests, on an international scale. This vast and complex operation is supported by a, “dedicated supply and transport network which delivers merchandise to anyone who is ready to pay – politicians, criminals or militants in neighboring countries.”10 Workers and suppliers in this “transport network”, are compensated well, reports indicate a monthly income of 70,000-80,000 rupees (approximately $930-$1070) – an income 10 to 15 times greater than what they would otherwise earn. Black money is the source of value by which such large illicit monetary dealings occur undetected. With no official uniform, legal or economic definition, the unreported economic market of black money has created a new medium of exchange, one born from the darker sides of globalization’s processes, yet reveals a deeper complexity to the flows and frictions of the Indian black market.

Black money, and the illegal financial practices it accommodates, compromise the unreported economy and illuminates the flows and frictions of a distinct Indian finance-scape. The researcher Chandrappa M. defines black money as, “assets or resources that have neither been reported to the public authorities at the time of their generation, nor disclosed at any point of time during their possession.”[12] Black money is generated from two distinct modes of operation. The first method of producing black money is by failing to declare or report entire income levels or the activities leading to those incomes. The second is failure to comply with regulatory obligations or tax evasion of income from legitimate sources. The people and businesses involved in these black money schemes are pegged to numerous different tax evasion types which occur by illegal manipulation of financial accounts. The most common method of manipulation is out of book transactions. These transaction types are prevalent in businesses like small grocery shops where accurate financial accounts are not maintained. Another is the Manipulation of Closing Stock which involves the suppression of closing stock in quality or value to understate profit. However, this essay will focus on International Transactions through Association Enterprises. Activities associated with this channel, shift taxable income to low tax jurisdictions or tax havens, and may lead to the accumulation of black money, earned from within India, in foreign countries. These illegal financial operations are caused for a variety of different reasons and factors, but are mainly due to a complex tax system, inefficient and ineffective tax authorities and a general level of corruption within the legal system. When governments collect less tax revenue than the expected amount, impacts on economic growth, including uncontrollable inflation and inflated real-estate prices, come to fruition.

From the state of Pune, stud farm owner Hasan Ali Khan confessed guilt after being accused of depositing over 60 billion rupees of black money in foreign banks. The black money Khan deposited, which the Indian Finance Ministry would eventually recover, went tax exempt for years. Evidence also suggests Khan financed and conspired with an international arms dealer, Adnan Khashoggi - a Saudi businessman jailed in 2012 for illicit financial transactions.[13] While unconfirmed, it is believed by many that Khashoggi had strong ties to Munger. Black money demonstrates how the Indian finance-scape is becoming increasingly difficult for authorities to manage.[14] The news reporter and researcher, Himanshi Dhawan, proposes international cooperation amongst countries by global financial intel sharing. With a suggested initiative of, “networking the networks”, he advocates that the United Nations Office on Drugs and Crime (UNODC) and other national law enforcement agencies cooperate and share with the global community financial information concerning the flow of black money across international borders.[15] From manipulation via the channel of International Transactions Through Associate Enterprises, Khan’s criminal success highlights Manuel Castell’s argument that state’s power is steadily declining in the network state. He explains,

"The central power-holding institution of human history, the state, is also undergoing a process of dramatic transformation. On the one hand, its sovereignty is called into question by global flows of wealth, communication, and information. On the other hand, its legitimacy is undermined by the politics of scandal and its dependence of media politics. The weakening of defense and representation around their identities, further de-legitimizing the state" [16]

Castells further points out that the state does not disappear – it simply transfers its power, sovereignty and resources to either local and regional governments, or creates international partnerships amongst other nations, represented by institutions such as the EU, WTO, IMF or UN agencies. In effect, to combat the illegal activities globalism produces, states themselves must become more globalist in their regulatory practices by increasing the connectivity of legal authority in both an international and regional scope – states have had limited success in these measures.

The illegal and unreported Indian economies have flourished in a globalized world, with black market commodities producing insightful narratives of the global through embedded histories, stories, experiences and ideas. Globalism implies connectivity, and this implication certainly holds true for globalized black markets. Throughout all of India’s illegal and unreported economic activity lies a pattern of increasing criminal connectivity for the purpose of evading increasingly connected state control. The unending game of cat and mouse between criminals and authorities has been present throughout all of humanity and will continue as long as the human species exits. Globalization cannot change that reality – it can only rewrite the rules and the playing field in which the game is played.

[1] Kenton, Will. "Black Market" ["Legislation & Regulation, Crimes and Fraud"]. Investopedia, 25 Mar. 2019, www.investopedia.com/terms/b/blackmarket.asp. Accessed 20 Mar. 2020. [2] USLegal. 1997, search.uslegal.com/searchjson.php?q=unreported+economy. Accessed 20 Mar. 2020. [3] USLegal. 1997, search.uslegal.com/searchjson.php?q=illegal+economy. Accessed 20 Mar. 2020. [4] Castells, Manuel. "Materials for an Exploratory Theory of the Network Society." Michigan Library, 21 Aug. 2008, pp. 5-24, umich.instructure.com/courses/338230/files/search?preview=13822864&search_term=Castells. Accessed 28 Mar. 2020. [5] "Munger's Traditional Gun Factories Are Bleeding." Hindustantimes [New Delhi], 23 Sept. 2015, India sec., www.hindustantimes.com/india/munger-s-traditional-gun-factories-are-bleeding/story-MaBHyMA3dDVIjR3WzhWPtM.html. Accessed 25 Mar. 2020. [6] Parliament of the Republic of India. "The Arms Acts, 1959 NO.54 of 1959." 3 Dec. 1959. United Nations Office on Drugs and Crime. [7] Beckert, Sven. Empire of Cotton. 2015 Accessed 28 Mar. 2020. [8] Murty, B. Vijay. "AK-47 Smuggling Racket in Bihar's Munger Getting Bigger than Police Had Anticipated." Hindustantimes [New Delhi], 10 Dec. 2018, Patna sec., www.hindustantimes.com/patna/ak-47-smuggling-racket-getting-bigger-than-police-had-anticipated/story-Nsp4b0xGEz0WZJyvj3tojI.html. Accessed 24 Mar. 2020. [9] Sassen, Saskia. "Deciphering the Global." Introduction. Deciphering the Global: Its Scales, Spaces and Subjects, 2007 Accessed 28 Mar. 2020. [10] Chatterjee, Partha. "Ch. Seven; Are Indian Cities Becoming Bourgeois at Last?" The Politics of the Governed: Reflections on Popular Politics in Most of the World, Columbia UP, 2004 [11] Khan, Zeyad Masroor. "Make in India: A Gun Smuggler Talks about Cheap Knock-Offs Taking over the Illegal Gun Trade." Vice News, 21 Feb. 2019, Crime sec., www.vice.com/en_in/article/j57dnx/make-in-india-a-gun-smuggler-talks-about-cheap-knock-offs-taking-over-the-illegal-gun-trade. Accessed 25 Mar. 2020. [12] M, Chandrappa. "Tax Evasion and Black Money in India: Causes and Remedies." International Journal of Management Research and Reviews, vol. 6, no. 10, Oct. 2016. Michigan Library, search-proquest-com.proxy.lib.umich.edu/docview/1844659665/fulltext/34B7600AAB404257PQ/1?accountid=14667. [13] "CBI, ED Register Cases against Hasan Ali Khan." The Hindu [Mumbai], 16 Mar. 2017, www.thehindu.com/news/cities/mumbai/cbi-ed-register-cases-against-hasan-ali-khan/article17468525.ece. Accessed 26 Mar. 2020. [14] "Black Money Case: Hasan Ali Surrenders before Enforcement Directorate." The Economic Times, 18 Mar. 2011, economictimes.indiatimes.com/news/politics-and-nation/black-money-case-hasan-ali-surrenders-before-enforcement-directorate/articleshow/7730990.cms. Accessed 26 Mar. 2020. [15] Dhawan, Himanshi. "UN Body Proposes Global Financial Intel Sharing to Fight India's Black Money Problem." The Times of India, Dec. 2014. ProQuest, search-proquest-com.proxy.lib.umich.edu/docview/1629704067?pq-origsite=summon. Accessed 25 Mar. 2020. [16] Castells, Manuel. "Materials for an Exploratory Theory of the Network Society." Michigan Library, 21 Aug. 2008, pp. 5-24, umich.instructure.com/courses/338230/files/search?preview=13822864&search_term=Castells. Accessed 28 Mar. 2020.




Analysis of Indian Black Market Essay
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