Black money draining India of Rs72,496 crore a year: study

India is losing about $16 billion (Rs72,496 crore) a year to outflows related to tax avoidance by wealthy individuals and companies, plus corruption and bribery, a new study by an international watchdog on the illicit flight of money shows.
 
Perhaps the first ever attempt at shedding light on a subject shrouded in secrecy, the study by Global Financial Integrity, part of a Washington-based research group, concludes that India has been drained of $462 billion (over Rs20 lakh crore) between 1948 and 2008 at current prices. The amount is nearly 40 per cent of India's gross domestic product, and nearly 12 times the size of the estimated loss to the government because of the 2G spectrum scam.

 ''If India would have avoided the flight of capital over such a long period, it would have enabled the country to either contract less debt or pay off the existing debt at the time,'' said the report's author, Dev Kar, formerly a senior economist at the International Monetary Fund. The outflow ''represents a staggering loss of capital.''
 
India's $1.3 trillion (Rs59 lakh crore) economy is aiming to narrow its budget shortfall to 5.5 per cent of gross domestic product in the fiscal year ending 31 March from 6.9 per cent the previous year by collecting more tax and selling assets. The report says that its estimate implies that almost three-quarters of money in the country's underground economy ends up abroad.
 
Global Financial Integrity used the World Bank Residual Model and the International Monetary Fund's Direction of Trade statistics to calculate the outflows.
 
Kar says illicit financial flows out of India have grown at 11.5 per cent a year, debunking a popular notion that economic reforms that began nearly two decades ago had tempered the creation and stashing away of black money overseas.

In fact, the problem has grown in the years after the reforms kicked in. Nearly 50 per cent of the total illegal outflows occurred after 1991. Around a third of the money exited the country between 2000 and 2008.

"It shows that reforms seem to have accelerated the transfer of black money abroad," says Kar, whose study titled 'The drivers and dynamics of illicit financial flows from India: 1948-2008' sifts through piles of data on the issue over a period of 61 years. Kar says the study is the most comprehensive yet on illicit financial flows from India.

His report comes amid a renewed government push in recent months to pursue black money stashed abroad. In late August, the government signed an agreement with Switzerland - its banks top a list of usual suspects - that will enable exchange of information on tax evaders. New Delhi is also in talks with at least 20 tax havens, particularly Mauritius, to extract similar information.

The government is also attempting to gain a measure of the total unaccounted money circulating in the economy. The finance ministry last week approached the National Institute of Public Finance and Policy to get a fix on such money.