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India Bleeding Through Illegal Transfers

Ranjit Devraj

NEW DELHI, Nov 29 2010 (IPS) - A new report suggesting that illegal transfers of funds into accounts abroad by India’s corrupt politicians, officials and businessmen average 19.3 billion dollars a year could turn out to be a “gross underestimate”, watchdogs warn.

The latest estimate by the Global Financial Integrity (GFI) programme of the Washington-based Centre for International Policy says more than 125 billion dollars were spirited out of the country in 2000-2008.

GFI, which tracks cross-border flow of illicit money that is “generally the product of corruption, bribery, kickbacks, criminal activities and efforts to shelter wealth from a country’s tax authorities,” says India cannot afford to ignore such massive leakages of funds.

“Had India managed to avoid this staggering loss of capital, the country could have paid off its outstanding external debt of 230.6 billion dollars (at end 2008) and have another half left over for poverty alleviation and economic development,” GFI said in the report ‘Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008’ released Nov. 16.

Since independence from British colonial rule in 1947, India has lost 462 billion dollars in “conservative estimate”. If gaps in statistics can be covered the estimate could well reach half-a-trillion dollars, the report added.

Following a World Bank model the report measured the difference between recorded sources of funds, such as borrowings and foreign direct investment, and actual use of funds, like financing the current account deficit.

Staggering as the GFI figures are, they only represent a small fraction of the ‘black money’ (funds hidden from the tax man) generated in the country, says Prof. Kamal Nayan Kabra, a leading economist and consultant who specialises in India’s huge ‘parallel economy’.

Kabra, who has taught at the prestigious Indian Institute of Public Administration that trains senior bureaucrats, told IPS that there was a “correspondence between the leakage of funds into safe havens abroad and the rate of generation of black money through such activities as property transactions, underreporting of contracts and the payment of speed money.

“It is important to note that as the country liberalises and there is more freedom to make external transactions, there will be greater leakages of Indian funds into foreign markets,” said Kabra. “What we are seeing is a trailer of what would happen once India goes in for full convertibility of the rupee that the liberaliser-globalisers are pushing.”

Kabra said one factor in transfer of money abroad was the removal of restrictions on foreign travel – imposed on Indians for several decades prior to the start of free market reforms in 1991- allowing them to physically carry amounts abroad and set up the links for stashing away unaccounted wealth.

Indians travelling abroad spent 392 million dollars in 1991, and 9.2 billion dollars in 2008.

According to Kabra, joint ventures abroad also provide opportunities to move funds generated though bribes, kickbacks and commissions into accounts held in tax havens. “You can see black money generated from the recent scams surrounding the Commonwealth Games and the grossly underpriced sale of telecom licenses.”

The GFI report, in line with Kabra’s views, admits that India’s vast underground economy (estimated to be at least as big as the formal one) is a significant driver of illicit financial flows.

In a preface to the report, GFI director Raymond W. Baker says that deregulation and trade liberalisation have accelerated the outflow of illicit money from the Indian economy. “The opportunities for trade mispricing have grown, and expansion of the global shadow financial system accommodates hot money, particularly in island tax havens.”

Vineet Narain, an investigative reporter and campaigner against ‘hawala’ (a system of illegal fund transfers through non-banking channels), told IPS that despite pious promises made at election time by political parties, the system has become so entrenched that there is little hope of ever dismantling it.

Narain shot into prominence after he filed a public interest litigation in the Supreme Court that resulted in several cabinet ministers being charged in 1997 with involvement in hawala transactions, and landmark rulings by the court on a system hushed up by a “conspiracy of silence” orchestrated by powerful politicians, bureaucrats and businessmen.

A ruling in Narain’s case laid down a three-month limit for the government to respond to complaints of corruption. The Supreme Court, earlier this month, reprimanded the government for failing to observe it in dealing with complaints of losses worth 40 billion dollars in the sale of telecom licences.

“The judgement in the Vineet Narain case has fixed a certain time-limit for grant of sanction (to prosecute – in this case union telecom minister Andimuthu Raja over vast corruption in granting of licences) by the competent authority,” the court reminded government counsel Nov. 16. Raja had resigned over the scam two days earlier, but it continues to rock Parliament.

“It is not surprising that hawala transactions have grown in size following liberalisation, or that it has become even more difficult to eradicate because of the volume of the flows,” Narain told IPS.

Narain regards GFI figures for total transfers abroad since independence in 1947 as “grossly understated”, and places them in the neighbourhood of 1.5 trillion dollars.

In a statement released prior to the mid-2009 general elections, Lal Krishna Advani, leader of the main opposition, the nationalist Bharatiya Janata Party, citing “credible estimates” said the size of money held by Indians in Swiss banks and other tax havens could be as high as 1.4 trillion dollars.

Advani, who was among those charged in 1997 for involvement in hawala transactions, promised to have the illegal funds tracked down and repatriated. But the BJP lost the elections to the Congress-led United Progressive Alliance under Prime Minister Manmohan Singh.

“No matter the outcome the elections or who is in power there is little real intent among the political classes to stanch the haemorrhage,” said Narain. “For a start, any disruption would cut into the way political parties are funded.

“However, the BJP’s offer of getting the humungous funds residing abroad repatriated and rechanneled into development refocused public attention to a serious problem affecting this poor country with many rich people,” Narain said. “India may be losing money faster now than under colonial rule.”

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  • Deepak Soni

    Oh my god!! India is gonna go to dogs if this continues! Only AAP can bring this money back, as all political parties and their politicians are involved in this money laundering.