BBC News - India lost $462bn in illegal capital flow... http://www.bbc.co.uk/news/world-south-asia-1178...

SOUTH ASIA
18 November 2010 Last updated at 10:17 GMT

India lost $462bn in illegal capital flows, says

report

India has lost more than $460bn since Independence because of companies and
the rich illegally funnelling their wealth overseas, a new report says.

The illegal flight of capital through tax evasion, crime and corruption had widened
inequality in India, it said.

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.

Shadow economy
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

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BBC News - India lost $462bn in illegal capital flow... http://www.bbc.co.uk/news/world-south-asia-1178...

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.

'Under-estimate'
Mr Kar used a World Bank model to calculate India's missing billions.

He compared India's recorded sources of funds, such as foreign direct investment and
borrowing, and its recorded use of funds, like foreign currency reserves and deficit
financing.

Illegal outflows are considered to exist when funds recorded exceed those used.
India's exports and imports over the past six decades were also taken into account.

Adjusted for inflation, that all added up to $213bn missing since 1948. Taking
estimated investment returns into account, Mr Kar calculated that was worth $462bn in
today's money.

The figure could be much more, he warned, as it did not include smuggling and cash
transfers outside the financial system.

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