Illegal outflow bleeds India - Nithin Belle
19 November 2010
MUMBAI — Illegal capital flight out of India adds up to a whopping Rs100 million (about $2.2 million) every single hour. And this has been happening every single day (24/7) round-the-year for several decades.
A new report by Washington DC-based centre for international policy, Global Financial Integrity (GFI), has come out with some shocking revelations about the flight of illegal capital from India.
The report, unveiled on Thursday, estimates that the total present value of India’s illicit assets held abroad add up to a mind-boggling $462 billion, more than a third of the country’s gross domestic product (GDP).
“India’s underground economy is closely tied to illicit financial outflows,” says Dev Kar, author of the report, lead economist at the GFI, and a former senior economist at the International Monetary Fund (IMF). “The total present value of India’s illicit assets held abroad accounts for approximately 72 per cent 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 per cent of India’s GDP (approximately $640 billion at the end of 2008) — ends up outside of the country.
Last week, Ratan Tata, one of India’s most respected industrialists and group chairman of the $70 billion (total revenues) Tata group, disclosed that an industrialist had told him a few years ago that a former senior government minister would, for a bribe of Rs150 million, agree to the group’s bid to launch an airline in a tie-up with Singapore Airlines.
Tata of course, refused to pay any bribes — coincidentally or otherwise, the airline could also not take-off because of political hurdles — but there are countless Indian businessmen who are eager to grease the hands of corrupt politicians and bureaucrats. “The $462 billion figure is not at all surprising, considering the amount of money that business houses have to give to politicians across the spectrum,” a businessman, who preferred anonymity, told this correspondent on Thursday.
About half-a-dozen major financial scams are dominating headlines in India these days; they include the 2G telecom scam (the Comptroller General of India has estimated a loss of Rs1.76 trillion to the exchequer because of this), the Commonwealth Games scandals, the Adarsh housing society scam in Mumbai, and the one involving land transactions by shell companies allegedly floated by the son of the Karnataka chief minister.
“We all knew about the flight of capital during the ‘licence Raj’ days in the pre-reforms era,” remarks another industrialist who also spoke on condition of anonymity. “But the GFI report indicates that such irregularities continue to take place even during the reforms era, when tax rates are down to a moderate 30 to 35 per cent, as against a high of 98 per cent in the past.”
Dar’s report notes that high networth individuals (including Bollywood and cricket superstars) and private companies were found to be the primary drivers of illicit flows out of India’s private sector.
According to Raymond Baker, Director, GFI, “at the 2004-08 pace (if it has not gone up), the economy is haemorrhaging at a rate of nearly Rs2.4 billion every day on average.”
From 1948 through 2008, India lost a total of $213 billion in illicit financial flows, finds the report. “These illicit financial flows were generally the product of: corruption, bribery and kickbacks, criminal activities, and efforts to shelter wealth from a country’s tax authorities.”
The present value of India’s total illicit financial flows, after making adjustments for estimated returns (based on the short-term US Treasury bill rate as a proxy for the rate of return on assets), works out to $462 billion.
Between 2002 and 2006, India lost $16 billion annually by way of illicit flight of capital. Baker notes that even this is a conservative estimate, as it does not include smuggling, certain forms of trade mispricing and gaps in available statistics. “It is entirely reasonable to estimate that more than half a trillion dollars have drained from India since Independence,” he adds.
Indeed, during the first eight years of the present century, about $125 billion has flown out of the country illegally, finds the report, which will come as a big embarrassment for the government led by Manmohan Singh, the architect of economic reforms, and known to be one of the most clean politicians in the country.