The report, The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008', released by Washington-based Global Financial Integrity (GFI) found that the faster rates of economic growth since economic reform started in 1991 led to a deterioration of income distribution which led to more illicit flows from the country. According to the primary findings of the report from 1948 through 2008, India lost a total of USD 213 billion in illicit financial flows (or illegal capital flight).
These illicit financial flows were generally the product of: tax evasion, corruption, bribery and kickbacks, and criminal activities. "The present value of India's total illicit financial flows (IFFs) is at least USD 462 billion. This is based on the short-term US Treasury bill rate as a proxy for the rate of return on assets. India's aggregate illicit flows are more than twice the current external debt of USD 230 billion," the report said.
"This report puts into stark terms the financial cost of tax evasion, corruption, and other illicit financial practices in India," said Global Financial Integrity director Raymond Baker.
"It also shows that these illicit outflows contribute to stagnating levels of poverty and an ever widening gap between India's rich and poor," he said. From 1948 through 2008 the Indian private sector shifted away from deposits into developed country banks and moved more of its money into offshore financial centres (OFCs). The share of OFC deposits increased from 36.4 per cent in 1995 to 54.2 per cent in 2009, the report said.
"In this report we clearly demonstrate how India's underground economy is closely tied to illicit financial outflows," said, GFI lead economist and report author, Dr Dev Kar.
"The total present value of India's illicit assets held abroad accounts for approximately 72 per cent of India's underground economy. This means that almost three-quarters of the illicit assets comprising India's underground economy—which has been estimated to account for 50 per cent of India's GDP (approximately USD 640 billion at the end of 2008)—ends up outside of the country," Kar said.