Dirty Money

In 2011, over Rs 4 lakh crore worth of black money was illegally taken out of India, a new report by the international watchdog Global Financial Integrity (GFI) has revealed. This was 24% more than the previous year.
This illegal outflow is nearly one third of the Government of India’s total budgeted expenditure in 2011 of Rs 13 lakh crore. It is 14 times the money spent by the central government on health, seven times that spent on education and five times the amount spent on rural development in that year.
The past few years in India have seen a series of exposures of megascams like the Commonwealth, 2G, Coalgate, Maha irrigation, Jharkhand mining, and others. This has led to a rising tide of public outrage, symbolized by Anna Hazare’s movement against corruption and the dramatic rise of the Aam Admi Party led by Arvind Kejriwal. The GFI report is a sobering reminder that the creation and outflow of illicit wealth gained new heights despite all the outrage.
In the 2002-11 period, India lost a staggering Rs 15.7 lakh crore ($344 billion) worth of black money created through crime, tax evasion, dodgy import-export practices and corruption. This works out to an average illicit outflow of about Rs 1.6 lakh crore in every year of the decade. A worrying feature of this loot from India is that it has grown every year in the past decade except in 2009, Clark Gascoigne of GFI said..
“India’s outflows increased steadily and dramatically for the whole decade, except for the one-year dip in 2009, during the height of the financial crisis, beginning at $7.9 bn in 2002 and ending up at $84.9 bn in 2011. That is a disturbing trend,” he said.
GFI estimates illicit flows by collecting two broad categories of data globally: changes in external debt and trade mispricing. For India, nearly the entire illicit outflow is through trade mispricing. This is how it works: an importer declares a higher import value to the customs department than the value of goods recorded by the exporting partner country. Similarly, an exporter understates the value of goods exported in relation to the imports recorded in the importing partner country. In both cases, balance of funds is kept abroad. International trade data reveals this by comparing partner trading countries.
Although a more rigorous methodology has been adopted by GFI this time, the estimates are still likely to be “extremely conservative” as trade misinvoicing in services, same-invoice trade misinvoicing, hawala transactions, and dealings conducted in bulk cash are not covered, explained Devendra Kar, formerly a senior economist at the International Monetary Fund.

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