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India in Top Five of Black Money Exporters List

 

Posted on Saturday June 07, 2014

Last updated Wednesday July 06, 2016

  India, illicit financial outflow, black money

The amount of black money or illicit financial outflow of India remained at 7.9 billion USD in 2002 which shot up to $84.9 billion in 2011, a growth over 1000% in a decade. The growth would surpass all records during 2012 and 2013 if part of the value of the 2G scam and other scams were syphoned to foreign bank accounts.

Basudev Mahapatra
 

“India has lost $343.9 billion to illicit outflows” or black money, as commonly referred to, in a decade, from 2002-2011, says a research conducted by Global Financial Integrity (GFI). So acting upon illicit financial outflows needs to be the top priority of the Indian government.

As per the GFI report, India ranks 5th in the world in illicit outflows, and is the poorest country in the top-10 by per-capita GDP: The data says that the growth in illicit outflows has exceeded the rate of India’s GDP growth.

China tops the world with $1.08 trillion of illicit outflows in the said decade followed by Russia, Mexico, Malaysia and India among the top 5. In 2010, India was the 8th largest exporter of black money.

The amount of illicit outflow of India remained at 7.9 billion USD in 2002 which shot up to $84.9 billion in 2011, a growth over 1000% in a decade. The growth would surpass all records during 2012 and 2013 if part of the value of the 2G scam and other scams were syphoned to foreign bank accounts.

The outflow of black money has been a huge issue in India. GFI’s report “The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008,” released in 2010, resulted in public outcry across the country.

According to the 2010 report that analysed 60 years’ data, from 1948 to 2008, India’s underground economy is closely tied to illicit financial outflows. The total present value of India’s illicit assets held abroad ($462 billion) accounts for approximately 72 percent of India’s underground economy. This means that almost three-quarters of the illicit assets comprising India’s underground economy—which has been estimated to account for 50 percent of India’s GDP (approximately $640 billion at the end of 2008)—ends up outside of the country.

The finding that only 27.8 percent of India’s illicit assets are held domestically support arguments that the desire to amass wealth illegally without attracting government attention is one of the primary motivations behind the cross-border transfer of illicit capital.

In the post-reform period of 1991-2008, deregulation and trade liberalization accelerated the outflow of illicit money from the Indian economy. Opportunities for trade mispricing grew and expansion of the global shadow financial system—particularly island tax havens—accommodated the increased outflow of India’s illicit capital flight.

Initiating measures to control the illicit financial outflow, the previous government beefed up efforts to curtail trade misinvoicing at customs, in 2012, recovering nearly $400 million in additional tax revenue in two years. However, “India has just scratched the surface at curtailing illicit financial flows,” a GFI release on the findings of the research says.

As the illicit money is often hidden in accounts in the countries with regulations that protect the identity of account holders or have low taxes, this, of course, requires the cooperation of Swiss authorities, who have every incentive to drag their feet.

Apprehending that the Indian account holders may move their money to another secrecy jurisdiction in the meantime, India was the first G20 country to call for automatic exchange of financial information, a position that the G20 has pledged to adopt by the end of 2015.

The hope of tracking down the money that flew out of the country has grown among Indians with the Indian Prime Minister Narendra Modi announced the formation of a Special Investigative Team (SIT) to probe illicit financial flows and track the ‘black money.’

Illicit financial outflows has become an issue of global concern. Responding to a call from GFI to push for an explicit illicit financial flows commitment in the post-2015 Sustainable Development Goals (SDGs), the G7 leaders, while meeting in Brussels, reiterated their commitment to curtailing illicit financial flows stemming from crime, corruption, and tax evasion.

The official communiqué of G7 meeting stated, “We will continue to work to tackle tax evasion and illicit flows of finance, including by supporting developing countries to strengthen their tax base and help create stable and sustainable states.”

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