Black Money

Illegal financial flows: the great drain robbery

Black money accounts for 50% of GDP, the report says

India has lost more than $460bn since Independence because of companies and the rich illegally funnelling their wealth overseas. The actual figure could be much more, as it did not include smuggling and cash transfers outside the financial system. (For a general perspective - $1billion is equal to about Rs.4600 crores)

The illegal flight of capital through tax evasion, crime and corruption had widened inequality in India. According to the report from US-based group Global Financial Integrity, the illicit outflows of money increased after economic reforms began in 1991. Many also accuse governments and politicians of corruption in India.

Global Financial Integrity, which is based in Washington, studies and campaigns against the cross-border flow of illegal money around the world. It said that the "poor state of governance" had been reflected in a growing underground economy in India since Independence in 1947.

Global Financial Integrity director Raymond Baker said the report "puts into stark terms the financial cost of tax evasion, corruption, and other illicit financial practices in India".

Some the main findings of the report are:

• India lost a total of $462bn in illegal capital flows between 1948, a year after Independence, and 2008.
• The flows are more than twice India's external debt of $230bn.
• Total capital flight out of India represents some 16.6% of its GDP.
• Some 68% of India's capital loss has happened since the economy opened up in 1991.
• "High net-worth individuals" and private companies were found to be primary drivers of illegal capital flows.
• The share of money Indian companies moved from developed country banks to "offshore financial centres" (OFCs) increased from 36.4% in 1995 to 54.2% in 2009.

The report's author, Dev Kar, a former International Monetary Fund economist, said that almost three quarters of the illegal money that comprises India's underground economy ends up outside the country.

India's underground economy has been estimated to account for 50% of the country's GDP - $640bn at the end of 2008.

According to Hindu :  India is losing nearly Rs.240 crore every 24 hours, on average, in illegal financial flows out of the country.

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Foot note : (another report)

The Swiss Justice Department on Friday said that the Government of India was dragging its feet on the black money issue.

In a Headlines Today exclusive, the department also said the Indian government had submitted forged documents to Swiss authorities in the $ 8-billion Hassan Ali money laundering case in January 2007. Stud farm owner Hassan Ali had illegally transferred $ 6 billion to UBS accounts and came under the Enforcement Directorate's radar.

Swiss government spokesman Folco Galli told Headlines Today that the Indian government was informed about the fake documents by Swiss authorities in January 2007 itself. Further, the Swiss claimed to have submitted certain queries to the Indian government in April 2007 but New Delhi has not bothered to file a reply even 24 months later.

Since the black money issue became a major election plank for the Lok Sabha polls, the Centre claimed in the Supreme Court that it has been doing what it can to bring back the black money stashed in Swiss banks. The Centre's affidavit in the SC however fails to mention that the Swiss have questioned the authenticity of the documents.

In fact, the Swiss spokesman's answer seems to suggest there has been little or no action from the government's side for the last two years in seriously pursuing the probe against Hassan Ali Khan.

The last sentence in the response of the Swiss is telling. Galli says, "India makes only few requests per year to Switzerland for legal aid in tracking down black money."

Given the black economy is considered much bigger than the Indian economy, the UPA government has a lot to answer for.

The Centre has been claiming that Swiss domestic laws don't allow them to access their bank accounts.

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