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Black money trail: 'India drained of Rs 20 lakh crore during 1948-2008'

In a season of swindles, kickbacks and scams, here is some more on the mother of them all. Black money the

popular moniker given to the billions seeded by dirty deals and whisked away abroad from the taxman's prying eyes

has received much attention in recent years.

The opposition never tires of screaming foul at the government. The government, for its part, is at pains to say it is

doing all it can to track down the illegal stash.

Despite the cacophony, an estimate of the scads of black money in secret bank vaults overseas has long been one big

unknown, resulting in a great deal of speculation and glib talk around the subject.

Finally, some help is at hand. A new study by an international watchdog on the illicit flight of money from the

country, perhaps the first ever attempt at shedding light on a subject steeped in secrecy, concludes that India has

been drained of $462 billion (Rs 20,556,848,000,000 or over Rs 20 lakh crore) between 1948 and 2008.

The amount is nearly 40% 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. The study has been authored by Dev Kar, a lead economist with the

US-based Global Financial Integrity, a non-profit research body that has long crusaded against illegal capital flight.

Mr Kar, a former senior economist with the International Monetary Fund, says illicit financial flows out of India

have grown at 11.5% 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.

Outflows accelerated after reforms

If capital outflows were a child of the independence era, the problem came of age in the years after the reforms

kicked in. Nearly 50% of the total illegal outflows occurred since 1991. Around a third of the money exited thecountry between 2000 and 2008.

"It shows that reforms seem to have accelerated the transfer of black money abroad," says Mr 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. The study, which Mr Kar says is the most comprehensive one yet on illicit financial

flows from India, will be made public on Thursday.

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.

But M Govinda Rao, director of the institute, says his think-tank is yet to decide on going ahead with the exercise

because it is not an easy task. "A study on this subject is a huge challenge because one is dealing with a very big

problem that covers hordes of money from many sectors," he says.

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Black money turned into an election issue during the 2009 general elections, with the BJP harping on the issue

throughout its campaign. Its leader LK Advani has been the most vocal critic of the government on this issue, time

and again questioning the government's resolve to chase illegal funds. Mr Advani recently urged the government to

publish a white paper on the issue.

While Mr Advani was unavailable for comment, the government's detractors on this issue say there is more talk than

action to address this issue.

"Everybody knows about the gravity of the problem, but the government has not shown the political will to bring the

money back to India," says Prakash Karat, general secretary of the Communist Party of India (Marxist).

The government has, however, received praise from Paris-based Organisation for Economic Cooperation and

Development, which has been at the forefront of the fight against tax evasion. OECD, whose relentless offensive is

largely credited with lifting the veil of secrecy over umpteen tax havens, hailed India's efforts to crack down on tax

evasion and sign information exchange agreements earlier this year.

These are but short-lived answers, say experts, adding that an overhaul in the global financial system is central to alasting solution. New tax havens will spring forth when pressure mounts on existing ones.

That is not to say there are only a few tax havens out there. Indeed, at least 91 such hotspots flourish across the

globe. Asian countries, particularly Thailand, Singapore, Hong Kong and Macau, too are emerging as new

destinations for parking illicit funds.

Besides Switzerland and Mauritius, Indian money is also said to end up in Seychelles and Macau. Due to the illicit

nature of these deposits, pinpointing the journey's end of the bulk of India's black money is tenuous at best.

The GFI study gives a measure of the amount of money that the government is chasing, but it is only a fraction of

the $1.4 trillion that the BJP claims is the illegal stash.

GFI acknowledges as much, saying its figure is conservative and hasn't taken into account smuggling and certain

types of trade mischief. It also admits to gaps in available statistics, lamenting the lack of data on the consolidated

fiscal balance with the government, which has hampered research. If these indicators were counted, India's total

illicit outflows would well be half a trillion dollars.