Black Money Outflow from India 33 Lakh Crores

By Vijay Kumar

IN its recent report, Illicit Financial Flows from Developing Countries: 2004- 2013, Global Financial Integrity states that during the period 2004-13, the illicit financial outflow amounted to 510,286 Million US Dollars - that's about 35 lakh crore rupees - more than the budgets of all the States in India put together.

This is only a conservative estimate as the Study did not cover misinvoicing involving services trade.

The Study reports,

"The primary tool for transferring IFFs is trade misinvoicing-according to this report, trade misinvoicing accounted for 83.4 percent of measurable IFFs on average, an average of USD 654.7 billion per year. The misinvoicing of trade is accomplished by misstating the value or volume of an export or import on a customs invoice. Trade misinvoicing is a form of trade-based money laundering made possible by the fact that trading partners write their own trade documents, or arrange to have the documents prepared in a third country (typically a tax haven), a method known as re-invoicing. Fraudulent manipulation of the price, quantity, or quality of a good or service on an invoice allows criminals, corrupt government officials, and commercial tax evaders to shift vast amounts of money across international borders quickly, easily, and nearly always undetected.

Cash transactions, same-invoice faking, misinvoicing in services and intangibles, and hawala transactions are simply not registered directly in available economic data. Thus, we characterize the estimates presented here as likely to be very conservative.

Illicit financial flows from developing countries are largely facilitated by continued opacity in the global financial system. This opacity reveals itself in many well-known ways: tax havens and secrecy jurisdictions, anonymous trusts and shell companies, bribery, and corruption. There are countless techniques to launder dirty money, including the misinvoicing of trade, which is used to shift proceeds of criminal activity across national borders."

During the reported period, India must have received about 20 lakh crore in FDI and what we lost must be more than double.

Of course India is not the top loser. We rank fourth. China, Russia and Mexico are ahead of us in the top three positions.

The President of (GFI) says,

Research shows that developing countries collect significantly lower levels of tax, as a percentage of GDP, than do wealthier states. This will need to change under the current circumstances and with the high bar established in the two development agreements. One way for poor states to collect more revenue is to close the so-called "policy gap." That is, put in place laws and regulations that close loopholes, eliminate contradictory statutes, and establish new categories of activity to tax in order to make the revenue system more efficient and fair. The second way to collect more revenue is to close the "compliance gap." For this governments must make efforts to improve the technical capability and efficiency of various departments to ensure proper amounts of tax are paid by those who owe it. The findings of this report are extremely valuable to governments seeking to close the compliance gap.