A recent study examining the ‘black economy’ in Punjab has uncovered a deeply entangled system, one where shadow economic activity feeds off fiscal stress, agrarian structures, real estate dealings, illicit markets and long-standing institutional failures. The study has noted that of all the forces driving this underground economy, the narcotics trade is the most visible and economically far-reaching.
The paper, authored by Deepratan Singh Khara, Lakhwinder Singh and R.S. Sidhu and titled ‘The Black Economy in Punjab-2026’, conducted for Thapar School of Liberal Arts & Sciences at Thapar Institute of Engineering and Technology in Patiala, and Institute for Human Development, New Delhi, highlights how the State’s 553-km international border with Pakistan, combined with its vast network of canals and rivers, has made Punjab a critical transit corridor for the cross-border trafficking of heroin and other opioids.
“The economic footprint of this trade extends well beyond the direct value of narcotics. It generates a parallel system of financial flows that permeate sectors such as real estate, informal credit and political financing, while sustaining a layered network of intermediaries including couriers, distributors, and local retailers. In this sense, the narcotics economy operates not merely as an illicit activity but as an embedded economic subsystem within the broader shadow economy of the State,” Mr. Singh told The Hindu.
The black economy, also described as the shadow or underground economy, includes all economic activities that remain outside formal regulatory and statistical systems, ranging from illicit trades such as narcotics trafficking to practices such as income underreporting and Goods and Services Tax (GST) non-compliance.
Asserting that the scale of narcotics trafficking in Punjab is most reliably inferred through seizure data, even as the seizures capture only a fraction of actual flows, Mr. Singh, said, “Over a longer horizon, the cumulative magnitude of the narcotics economy becomes more evident. Aggregate estimates for the period 2015 to 2024 suggest total seizures in excess of 2,17,000 kilograms and heroin recoveries exceeding 4,600 kilograms, based on compiled police and national agency data. These figures underscore that narcotics trafficking in Punjab is not episodic but systemic, with a scale large enough to sustain extensive informal economic networks and associated financial flows.”
Pointing towards the relevance and human cost of the substance use, Mr. Singh said that household level analysis shows that substance dependence is concentrated among younger, underemployed males with limited educational attainment, with initiation often occurring at an early age. “The interaction of unemployment, agrarian stress and geographic proximity to trafficking routes emerges as a critical driver, while perceptions of political patronage to smuggling networks introduce an additional political economy dimension.” he said. The findings indicate that the narcotics economy in Punjab is sustained not only by supply side dynamics but also by a broad and socially embedded demand base, he added.
The analysis, Mr. Singh said, establishes that the black economy in Punjab is not a singular or isolated phenomenon but a structurally embedded system shaped by the interaction of incentives, institutional constraints, and socio-economic conditions. The narcotics trade, fiscal stress and GST compliance gaps, real estate and land transaction undervaluation, agricultural informality, illicit liquor production and illegal sand mining operate as interconnected channels, collectively eroding fiscal capacity, weakening public health outcomes, distorting formal markets and undermining social stability, he added.