The total gross transfers of illicit assets by Indian residents is estimated to be $462 billion at the end of 2008. It is estimated that a total of $213.2 billion was shifted out of India between 1948 and 2008, or about 17.7% of India’s GDP at end-2008.
These illicit flows growing at a rate of 11.5% per annum principally due to factors of governance, says Dev Kar.
The solution to getting the national wealth back? Here is the view of Fali Nariman (Personal communication, April 26, 2011) which I accept totally:
Thank you for sending me your brief comment on the PTI Report (about a RoundTable in India Intl. Centre). You ask why the conference didn’t talk about the effectiveness of the Lok Pal to ensure restitution of monies stacked abroad?
In my stint in the Rajya Sabha I had repeatedly drawn attention of the Government benches, of the huge amounts stacked abroad and the need to do something about it. Everyone congratulated me on the intervention but nothing was done. In one of my speeches I had also suggested nationalisation of all accounts held in Swiss Banks with a provision that moneys legitimately there would be paid back by the Custodian of the nationalised accounts in Banks in Switzerland to the holders – It was met with silence. But there was no positive response from the Government (neither the BJP Government nor the UPAI Government.
So take heart NOTHING WILL BE DONE – unless the wow-much maligned expression “Civil Society” takes it up.
I will take heart. People of India have to tell the functionaries: singhasan khaali karo ke janataa aati hai. The demand of the people of India has to be: nationalise illicit wealth of over $400 billion stashed abroad and bring it back into the nation’s financial system.
Nationalisation ordinance by the President of India is called for.
If the looted wealth of Mubarak or Gadhafi can be brought under the new Swiss law (effective 1 Feb. 2011) for restitution of illicit wealth of politically exposed persons, there is no reason why international pressure cannot be built on India demanding similar restitution of the illicitly stashed wealth of India in tax havens. http://www.scribd.com/doc/38995251/Restitution-of-Illicit-Assets-Act-RIAA
Here are the link and excerpts from the excellent, well-documented monography by Dev Kar.
An Empirical Study on the Transfer of Black Money from India: 1948-2008, Economic and Political Weekly, April 9, 2011, Vol. XLV: No. 15
This paper provides an in-depth analysis of the drivers and dynamics of black money transfers (illicit financial flows) from India since the first full year after independence until 2008. It is estimated that a total of $213.2 billion was shifted out of India between 1948 and 2008, or about 17.7% of India’s GDP at end-2008. Applying rates of return on these assets based on the short-term US Treasury bill rate, the total gross transfers of illicit assets by Indian residents amount to $462 billion at the end of 2008. Over this period, illicit flows grew at a compound nominal rate of 11.5% per annum while in real terms they grew by 6.4% per annum.An important finding is that illicit flows from India are more likely to have been driven by a complex interplay of structural factors and governance issues than they are by poor macroeconomic policies. There are reasons to believe that the cumulative loss of capital is significantly understated because economic models can neither capture all sources for the generation of illicit funds nor the various means for their transfer.
Dispelling Some Myths Regarding Black Money
There are certain myths surrounding the transfer of black money that have been circulating in the Indian media. These should be dispelled not only to clear the air but to allow well-focused policy discussions on curtailing the generation and transmission of i llicit capital. First, we ﬁ nd media reports ﬂ oated by some academics that Indian nationals hold around $1.4 trillion (PTI 2010) in illicit external assets to be wildly exagerrated. This is because the back-of-the-envelope method used to derive the $1.4 trillion is deeply ﬂ awed – the ﬁ gure was based on Global Financial Integrity’s (GFI) estimated average illicit outﬂ ows of $22.7 billion per annum (over the period 2002-06) in the original GFI report m ultiplied by 61 years since independence (Kar and Cartwright Smith 2008). Of course, it is totally erroneous to apply annual averages to a long time series when illicit ﬂ ows are ﬂ uctuating sharply from one year to the next. To illustrate, India’s GDPamounted to slightly less than $22 billion in the six years 1950-55, which would imply that more than 100% of GDP was transferred out as black money in each of those years – an absurd proposition…
Getting the Money Back?
Finally, there continue to be sporadic reports in the Indian media of “getting the money back” from various tax havens around the world. This too is sensationalism with scant regard for the legal and other challenges involved. Illicit assets are typically lodged in secrecy jurisdictions behind a tight wall of opacity. Moreover, complex ﬁ nancial instruments such as derivatives and trust companies are structured in such a way that tracing the ultimate beneﬁ ciary of such investments is next to impossible. Furthermore, proving that a certain individual received illicit funds from a speciﬁ c source for a speciﬁ c illegal activity (as a r esult of bribery, kickbacks, drug trafﬁ cking, etc) and then transferred those funds on a speciﬁ c date to a speciﬁ c account in a s ecrecy jurisdiction is almost impossible to do in a court of law. To make matters more difﬁ cult, offshore centres, tax havens, and even developed country banks would not permit any government agency to go on a “ﬁ shing expedition” by allowing them to trawl through their accounts in search of illicit funds. Hence, the legal challenges involved in linking illicit funds to speciﬁ c account holders would be almost impossible to surmount…
There are a number of policy implications arising out of this study. We found that the underground economy is an important driver of illicit ﬁ nancial ﬂ ows. The growth of the underground economy is indicative of the state of overall governance in the country. Generally, one would expect a high correlation between the state of overall governance and the size of the underground economy – countries with strong governance (such as Norway) typically have a small underground economy whereas those with poor governance (such as Nigeria) have a large underground economy. The policy implication is that measures that shrink the underground economy can be expected to curtail illicit ﬂ ows, while those that expand it would drive such outﬂ ows. As tax evasion is a major driver of the underground economy, efforts to e xpand the tax base and improve tax collection can be expected to curtail illicit ﬂ ows. But this is not as easy as it sounds. Improving tax compliance requires a sustained and credible effort by the government whereby economic agents are convinced that the tax burden is distributed fairly and that they are getting their money’s worth in terms of the services that the government provides. Tax payers then become true stakeholders of the economy and tax evasion loses some of its appeal.
Illicit ﬁnancial ﬂows cannot be curtailed without the collaborative ef for t of both developing as well as developed countries. Developing countries need to adopt a whole range of policy measures including sound macroeconomic policies and improved governance through strengthened institutions and implementing the rule of law. At the same time developed country regulators must ensure that banks and offshore ﬁ nancial centres do not u ndermine the efforts of developing countries. Advanced industrial countries must hold their ﬁnancial institutions to high standards of corporate governance and greater accountability and transparency regarding the services they provide. Absorbing illicit ﬂ ows from developing countries without regard to the i llegal manner in which the capital was generated and facilitating the transfer of this capital should not be acceptable as a business model to any government or regulatory agency.