STATE FAILURE IN INDIA - POLITICAL-FISCAL IMPLICATIONS OF THE BLACK ECONOMY

The underground or 'black economy' has been a source of considerable c oncern to Indian public policy analysts since the mid 1960s. In this a rticle we argue that the black economy played a critical role in the s oftening of the government budget constraint in the 1980s. It, inter a lia, reflects a decline in the fiscal surplus accessible to the state. The origins and disposition of black income are traceable, it is argu ed, to petty bourgeois groups rather than to direct 'corruption' of th e type identified in the rent-seeking literature.