Government and corrupt Politicians are the main culprits in depriving the poor of crucial resources

Nov 18, 2010 | AP
India has lost hundreds of billions of dollars over the past six decades as companies and the rich stashed cash overseas to avoid taxes and hide ill-gotten gains, widening inequality and depriving the poor of crucial resources, a new report shows.

The flood of illegal cash has swelled to ever greater heights since the early 1990s, and averaged $16 billion a year from 2002 to 2006, as India's opening of its economy created more wealth and opportunities to move it across borders, according to the study by Dev Kar, a former International Monetary Fund economist.

Kar, now senior economist at Global Financial Integrity, a Washington DC group that researches the flow of illicit money, said India's black money - at least $462 billion since the late 1940s - could have paid for its entire infrastructure needs and much more.

"We could have had better schools, better health programs, better nutrition programs for the poor. Children could have been vaccinated and given access to fresh drinking water. Many areas don't have electricity," he said.

"The high net worth individuals are the ones driving illicit flows," Kar said.

The ministry of finance and spokespeople for the ruling government did not respond to requests for comment on the report. Other analysts aren't taking issue with Kar's research methods but question whether the blame should be pinned on companies and privately wealthy individuals. They argue the government and corrupt politicians are the main culprits.

Kar used a World Bank model to measure the gap between the nation's recorded sources of funds, like borrowing and foreign direct investment, and its recorded use of funds, like financing the current account deficit and foreign currency reserves. Illicit outflows are considered to exist when a country's recorded source of funds exceeds its recorded use of funds.

Kar supplemented that by looking at differences between the value of what India says it exports and what other nations say they import from India. This captures practices such as understating the value of export contracts to hide money overseas.

Adjusted for inflation, that all added up to $213 billion missing since 1948. Using the short-term US Treasury bill rate to estimate a conservative investment return, Kar calculated that money would be worth, at minimum, $462 billion today.

The figure could be understated by half, Kar said, partly because it doesn't cover harder to track activities including smuggling and cash transfers outside of the financial system.
India's rich have been cheating country of billions, for six decades: click here to read the full account