India Home to Second Highest Number of Shadow Businesses: Study

In the study, Professior Autio and Dr Kun Fu estimate that business activities conducted by informal entrepreneurs can make up more than 80 per cent of the total economic activity in developing countries and the types of businesses include unlicensed taxicab services, roadside food stalls and small landscaping operations. The researchers suggest that if India improved the quality of its democratic institutions to match that of Malaysia, it could boost its rate of formal economy entrepreneurs by up to 50 per cent, while cutting the rate of entrepreneurs working in the shadow economy by up to a third.

This would mean that the government could benefit from additional revenue from taxes. "The shadow economy results in loss of tax revenue, unfair competition to registered businesses and also poor productivity - factors which ultimately 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 report notes. While the Philippines (126), Pakistan (109) and Egypt (103) make up the top 5 of the league table of shadow businesses, 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.

The researchers concluded that where proper economic and political frameworks are in place, individuals are more likely to become "formal" entrepreneurs and register their business because doing so enables them to take advantage of laws and regulations that protect their company, such as trademarking legislation. To create their league table, the UK researchers combined data from the Global Entrepreneurship Monitor (GEM) and the World Bank.

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