According to a recent UK study conducted by researchers at the Imperial College Business School situated in London, India has become a nation with the most number of unregistered businesses in the entire world. The study also reported that Indonesia had the most number of shadow businesses.
The team behind the research studied over 68 countries and developed a league table with the aforementioned results. According to the study, India has become a hotspot for a many shadow entrepreneurs who are currently operating in the country without officially registering their businesses with the concerned authorities. The study points out that this could seriously hamper the nation’s economic growth.
The study also pointed out that Indonesia happened to have the highest ratio of shadow businesses to registered businesses (a record 130 shadow economy businesses for every one registered business). This was followed by India, which is reported to have 127 shadow businesses for every registered business.
So who are these shadow entrepreneurs and what do they deal in? Shadow entrepreneurs are individuals who run businesses selling legitimate services and goods. However, they refrain from registering their businesses with the official authorities in order to escape paying taxes. Operating in the shadow economy also enables these entrepreneurs to gain access to markets that are outside the reach of government authorities.
The study indicates that it is extremely important for developing countries to know and understand the shadow economy entrepreneurship, considering the fact that it can affect economic development adversely.
The study also claimed to have founds that robust government policies could play significant roles in encouraging these shadow economy entrepreneurs to move to the formal economy. This in turn would motivate these individuals to innovate, accumulate capital and then invest in the economy, thus improving economic growth considerably.
According to Dr Kun Fu and Autio, over 80% of the total economic activity in these developing countries is made up of the business activities conducted by these informal entrepreneurs. Most of these activities dealt with businesses related to small landscaping deals, unlicensed cab and taxi services, roadside food stalls, etc.
Operating without proper licenses, these shadow businesses can hamper economic growth significantly. The study indicates that proper government policies could help these entrepreneurs transition smoothly from the shadow economy to the formal one, thereby helping promote economic growth in these countries.