Washington, Nov 21, 2010 (Calcutta Tube/IBNS) Amid the surge of financial scams in India, comes a damning report by a Washington-based organization which says tax evasion, crime, and corruption have removed gross illicit assets from India worth US $462 billion since Independence.
According to “The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008,” released on Wednesday from Global Financial Integrity (GFI) here, from 1948 through 2008, India lost a total of US $213 billion in illicit financial flows (or illegal capital flight).
These illicit financial flows were generally the product of: tax evasion, corruption, bribery and kickbacks, and criminal activities.
While the present value of India’s total illicit financial flows (IFFs) at US $462 billion, based on the short-term U.S. Treasury bill rate as a proxy for the rate of return on assets, is twice the current external debt of US at $230 billion.
Based on the last five years of the study, 2004-2008, India lost assets at a rate of US $19 billion per year.
Total capital flight out of India represents approximately 16.6 percent of India’s GDP as of year-end 2008. In present value terms, India lost an equivalent of about 36 percent of its 2008 GDP which represents a staggering loss of capital, the report said.
Some 68 percent of India’s aggregate illicit capital loss occurred after India’s economic reforms in 1991, indicating that deregulation and trade liberalization actually contributed to/accelerated the transfer of illicit money abroad.
Moreover, the report finds that the poor state of governance is reflected in a growing underground economy which in turn has fuelled more transfers of illicit capital from India.
This analysis is cast in terms of a pre- and a post-reform period spanning a total of 61 years since independence.
“This report puts into stark terms the financial cost of tax evasion, corruption, and other illicit financial practices in India,” said Global Financial Integrity director Raymond Baker.
“It also shows that these illicit outflows contribute to stagnating levels of poverty and an ever widening gap between India’s rich and poor.”
“In this report we clearly demonstrate how India’s underground economy is closely tied to illicit financial outflows,” said GFI lead economist and report author, Dr. Dev Kar.
“The total present value of India’s illicit assets held abroad 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 US $640 billion at the end of 2008)—ends up outside of the country.
“We also find that there is a statistical correlation between larger volumes of illicit flows and deteriorating income distribution.”
The report also makes recommendations for economic reforms and good governance measures and contains comprehensive tables, charts, and other data for detailed analysis of India’s illicit financial flows, economic indices, and history of financial reforms.