The X files

The surge of black money through our economy is hard to track, hard to tally.

- Kashyap Kompella

We have only vague outlines of how much there is, and how it moves and grows. We think of it as a parallel economy, but it isn't. Not really. It is twisting housing prices out of shape, driving luxury goods markets. It mangles our sense of how the pyramid of wealth is shaped, and distorts our sense of our place within it. Are you really upper-middle-class? Kashyap Kompella does the math to show you where things standIn Delhi, bookings for a new set of luxury residential towers open in the morning; by lunchtime, the developer declares they are sold out. Elsewhere, a government employee celebrates his daughter's wedding with gifts of luxury cars. In election season, enforcement agencies seize stashes of unaccounted-for wealth being ferried about in cash.

These are not separate stories.

They are the story of how black money moves through India, keeping a chunk of the country's wealth outside the official economy, even as it shapes prices, behaviour, and inequality.

Understanding India's black money system involves: understanding how it is generated (and why it resists measurement); how it is converted into durable assets; and how those processes distort our measurements and understanding of inequality.

That last bit is the reason upper-middle-class Indians cannot afford homes in prime metros; or luxury goods in the malls; or the kinds of aspirational cars we see on the streets.

To be sure, this isn't a problem unique to India. Black money surges through the economies of Russia, China, Mexico, as well as a number of African and Asian countries.

Such wealth negatively impacts growth and infrastructure; mangles our sense of the size of our economy; and distorts our sense of our place within it.

Here's how the story goes.

Defining hidden income