India has 2nd highest no of shadow entrepreneurs in the world

LONDON: India has the second highest number of shadow entrepreneurs in the world. For every business that is legally registered in the country, there are 127 shadow businesses that are not.
In a study of 68 countries, Erkko Autio and Kun Fu from Imperial College Business School found that after Indonesia, India has the second highest rate of shadow entrepreneurs.
This is the first time that the number of entrepreneurs operating in the shadow economy has been estimated.
Shadow entrepreneurs are individuals who manage a business that sell legitimate goods and services but they do not register their businesses. They do not pay tax and operating in a shadow economy where business activities are performed outside the reach of government authorities.
Indonesia has 131 shadow businesses to every business that is legally registered compared to India's 127.
Philippines have 126, Pakistan has 109 and Egypt has 103 shadow businesses to every legally registered business.
Experts say the shadow economy results in loss of tax revenue, unfair competition to registered businesses and also poor productivity – factors which hinder economic development.
As these businesses are not registered it takes them beyond the reach of the law and makes shadow economy entrepreneurs vulnerable to corrupt government officials.
The researchers said, "If India improved the quality of its democratic institutions to match that of Malaysia for example, it could boost its rate of formal economy entrepreneurs by up to 50% while cutting the rate of entrepreneurs working in the shadow economy by up to a third. This means that the government could benefit from additional revenue such as taxes."
The UK exhibits the lowest rate of shadow entrepreneurship among the 68 countries surveyed, with a ratio of only one shadow economy entrepreneur to some 30 legally registered businesses.
Autio said, "Understanding shadow economy entrepreneurship is important for developing countries because it is a key factor affecting economic development. We found that government policies could play a big role in helping shadow economy entrepreneurs transition to the formal economy. This is important because shadow economy entrepreneurs are less likely to innovate, accumulate capital and invest in the economy, which hampers economic growth."