India lost a staggering $1.6 billion dollars, that is, about Rs. 72,000 crore in 2010 through illegal outflow of funds to foreign countries, the new report has revealed. For the decade 2001 to 2010 the total loss due to such outflows was estimated at $123 billion, or an average of $12.3 billion every year. Of this, nearly $120 billion, that is, 97 percent was due to trade mispricing.
This is a strategy in which an importer declares a higher import value to the customs department than the value of goods recorded by the exporting partner country or, an exporter understates the value of goods exported in relation to the imports recorded in the importing partner country. In either case the balance of funds remains abroad. International trade data reveals this discrepancy when partner trading countries values of goods traded are compared.
The figures released by GFI put India in the 8 th place in a ranking of 143 developing countries according to the amounts flowing out. China tops the list with $274 billion average outflow every year between 2001 and 2010. In 2010 China lost 420.4 billion. The developing world as a whole lost $5.9 trillion in the decade.
Illicit outflows from India are much lower in 2009 ($0.28 billion) and 2010 ($1.61 billion) than they were on average for the rest of the decade, according to the GFI report. Dev Kar, lead economist of GFI and co-author of the report told TOI that the fluctuations in illicit outflows from year-to-year are sharp and unpredictable and it is only over a longer period that real trends emerge.
"While a complex mix of macroeconomic, governance, and structural factors are responsible for the cross-border transmission of illicit funds over the long run, they first need to be generated internally as and when overt and covert opportunities present themselves to those willing to take advantage of them," Kar told TOI in response to an emailed query. The Indian figure of $123 billion is actually not the whole amount that was spirited away from the country evading taxation. The estimates provided are likely to be extremely conservative said Dr. Dev Kar.
"They do not include trade mispricing in services, same-invoice trade mispricing, hawala transactions, and dealings conducted in bulk cash," explained Kar, who previously served as a senior economist at the International Monetary Fund. "This means that much of the proceeds of drug trafficking, human smuggling, and other criminal activities, which are often settled in cash, are not included in these estimates."
"If we had reliable figures or estimates on these exclusions, without question our estimates of illicit flows from emerging market and developing countries would be much higher," the report says. Even then, $123 billion is a massive amount of money for the Indian economy to lose said Dr. Dev Kar, GFI Lead Economist and co-author of the report. "It has very real consequences for Indian citizens. (It) could have been used to invest in education, healthcare, and upgrade the nation's infrastructure. Perhaps last summer's electrical blackout would have been avoided if some of this money had remained in India and been used to invest in the nation's power grid," Kar said.
The report-the first by GFI to incorporate a new, more conservative, estimate of illicit financial flows-found that all developing and emerging economies suffered US$858.8 billion in illicit outflows in 2010, just below the all-time high of US$871.3 billion set in 2008-the year preceding the global financial crisis.
Wealth Drain
| Illicit Financial Flows (2001 - 2010) | |
| India | $123 billion |
| China | $2,742 billion |
| Russia | $152 billion |
| Brazil | $3.5 billion |
| South Africa | $84 billion |
| All developing countries | $5,859 billion |
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