India Losing Billions to Capital Flight
Corruption, bribery, tax evasion, and other illicit activities have led to USD 213 billion dollars being transferred out of India in the years between 1948 and 2008, or an astounding USD 462 billion in present value terms.
Global Financial Integrity (GFI), an international non-profit organization promoting the global fight against cross-border flows of illegal money, have released a comprehensive new report detailing the extent of historic and current illicit capital flight out of India. The report, which was released on November 17th, claims that the country has experienced a gross total of USD 213 in illicit outward financial flows since 1948. If adjusted to present value terms, the outflows are more than double India’s current external debts, and equal to nearly 36 percent of the national GDP for the 2008 year. Based on figures from the last 4 years, India is currently loosing upwards of USD 19 billion annually to illicit capital flight.
According to the analysis within the report, nearly 68 percent of the total illicit financial flight from India occurred in the period since 1991. The disproportionate increase was attributed to fiscal reforms carried out in the same year, leading the report’s authors to claim that national economic deregulation and trade liberalization contributed heavily to the transfer of illicit moneys to overseas destinations, especially offshore tax havens.
The fight against illicit financial flows cannot succeed without the concentrated and collaborative efforts the international society. The report recommended that all jurisdictions instate mandatory country-by-country reporting standards. It was also stated that governments need to make greater attempts to curtail trade mispricing by multinational companies, which caused a large portion of India’s capital flight since 1991. As a significant proportion of India’s illicit financial flows stem from the national underground economy, it was claimed that actions to address illegal activities would have a direct impact on capital flight. A decision by the Government to expand the national tax base, reduce corruption and improve tax collection efficiency would decrease illicit financial flows and greatly improve the national economic standing.
Photo by Matthieu A.