India’s Informal Economy and Foreign Investment

Oxford, UK, July 06, 2012
Amanpreet Singh Chhina

Depreciating value of Indian rupee has raised enthusiasm among foreign investors/NRIs to invest in India; however, without seriously analysing the fact that 80 percent businesses in India are based in informal economy and huge amount of black money is involved in the real estate and private sector. Generally, the purchase of any property in India involves 60 to 70 percent of black money and therefore the seller faces many obstacles to bring that investment back to the foreign country. “Many foreign investors are facing money laundering inquires by the investigating officers in foreign countries” said Makhan Singh (NRI), Solicitor Advocate of England and Wales.

In India, growth in informal sector is much higher than formal sector and even the Prime Minister of India is not sure about the actual GDP of the country. It is estimated that illegal transactions in the property sector alone generate about Rs. 2,000 crores of black money in a year in India, assuming that there are about fifty lakh transactions in urban property every year. Necessary steps should be taken by the Government of India to match government value of the property with fair market value to clamp down black money and money laundering in the country. It must be remembered that a simple ‘Welcome Back’ slogan by the Prime Minister of India will not attract back Indian professionals and investors unless a corruption free infrastructure and business environment (single-window clearance) is provided. GOI should develop policies to combat money laundering and black money issues so that foreign investor or NRI’s can invest in India.

Amanpreet Singh Chhina 
LL.B, MBA, MSc. (Oxford)