India lost $ 462 bn in illegal capital flows as per a report by Global Financial Integrity

We may recall that few months back a lot of talk happened on huge piles of illicit money being parked in some European banks. Infact, this subject got raised even during the last parliamentary elections.

A latest report by an international watchdog - Global Financial Integrity has estimated the amount of black money. The report estimates that between 1948 to 2008 the tax evasion, crime, and corruption have removed gross illicit assets from India worth US $462 billion (i.e. more than 20 Lakh crores!). This amount is nearly 40% of India's GDP.

Some of the primary findings of the report:

• 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.
• Adjusted Estimates: The present value of India’s total illicit financial flows (IFFs) is at least US $462 billion. This is based on the short-term U.S. Treasury bill rate as a proxy for the rate of return on assets.
• India’s aggregate illicit flows are more than twice the current external debt of US $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.
• 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.

The report is authored by Dev Kar, formerly a Senior Economist at the International Monetary Fund (IMF), is Lead Economist at Global Financial Integrity (GFI) at the Center for International Policy.

This brings down some hard questions - what is the Government doing to get portion of this money back. Have they identified top 10 individuals that hold such huge cash offshore; if so, they should make these names public and discuss this in Parliament. It is quite a possibility that even this staggering amount may fall short of the actual illicit money parked by some of our rich politicians which may have happened via cash transfers etc.

The Govt. should pursue the objective of ensuring that this money is bought back. The Govt. should have a debate on this topic in the Parliament and subsequently raise this at U.N

The Govt. should begin this cleaning process by first releasing the data on such illicit money of politicians held abroad.