India is leaking like a tap. Money is flowing out of the country, and there seems no way of plugging the breach. Crime, corruption, and tax evasion drained US$344 billion from India between 2002 and 2011. Illicit financial flows, in fact, have jumped more than 10 times from $7.9 billion in 2002 to roughly $85 billion in 2011.
The findings—which peg cumulative illicit financial outflows from developing countries at US$5.9 trillion —are part of a new study published Thursday by Global Financial Integrity (GFI), a US-based research and advocacy organisation. The report, “Illicit Financial Flows from Developing Countries: 2002-2011,” is an annual update on money flowing out of developing economies as a result of crime, corruption and tax evasion.
Developing countries lost nearly $1 trillion to fraud, corruption and shady business transactions in 2011, vastly outpacing the foreign aid they received and the pace of dirty money leaving emerging nations is accelerating. Illicit finance leaving the 150 developing countries were up 13.7 percent from the previous year and the largest amount in a decade. This virtually means that for every $1 in economic development assistance going into a developing country, $10 are lost via these illicit outflows.
India is now the fifth largest exporter of illicit capital in the world, having jumped from the 15th position in the GFI rankings two years back. The only thing the Indian government can find solace in is the fact that India is not the worst of the lot – it is China, which lost $1.08 trillion during the period. The other countries above India are Russia, Mexico and Malaysia. All the five BRICS countries, posterboys of the World Bank, feature in the dubious Top 20, with Brazil coming in at 7th and South Africa at 13th. The research tracks illegal money flowing out of 150 developing countries, using trade and balance of payments reports filed with the International Monetary Fund.
And, critics of the Indian government's liberalisation policies and globalisation watchword now have some more numbers to nail it with. The authors of the study, Dev Kar and Brian LeBlanc, wrote, "In the case of India, we found that while the link between growth and broad capital flight—as measured by the WBR (World Bank Residual) model adjusted for trade misinvoicing—was statistically insignificant for the period as a whole (1948-2008), there was strong evidence that the much faster rates of economic growth following India’s economic liberalisation in 1991 stimulated more capital flight."
Since illicit flows cannot be precisely measured as they are hidden by nature, GFI' provides an approximation. It updated its methodology this year to include re-exporting through Hong Kong and different types of trade data. Trade misinvoicing, whereby exports and imports are booked at different values to avoid taxes or to hide large transfers of money, is the most popular method accounting for over 79 per cent of the illicit flows. The researchers said, "India, the Philippines, and Thailand re-exported a total of $286 billion worth of goods through Hong Kong in the 2011-2012 period."
HIGHLIGHTS
* Developing countries lost US$946.7 billion in illicit outflows in 2011, an increase of 13.7% over the US$832.4 billion that flowed out of developing countries in 2010. The 2011 outflows are the highest on record over the decade.
* Developing countries lost US$590.0 billion per annum on average through illicit outflows over the decade ending 2011. Cumulatively, developing countries lost US$5.9 trillion to illicit outflows between 2002 and 2011.
* Asia accounted for 39.6% of total illicit flows from the developing world followed by developing Europe (21.5%), the Western Hemisphere (19.6%), the Middle East and North Africa (11.2%), and Sub-Saharan Africa (7.7%).
* Illicit outflows averaged roughly 4.0% of GDP per year from all developing countries over the decade. As a percent of GDP, Sub-Saharan Africa had the biggest problem—with average annual illicit outflows totaling 5.7% of GDP—followed by developing Europe (4.5%), Asia (4.1%), MENA (3.5%), and the Western Hemisphere (3.5%).
* Trade misinvoicing was found to account for an average of 79.7% of illicit flows from developing countries over the period 2002-2011, down from its high of 91.2% in 2004.
* The Top 10 countries with the highest measured cumulative illicit financial outflows between 2002 and 2011 were:
1. China: US$1.08tn
2. Russia: US$880.96bn
3. Mexico: US$461.86bn
4. Malaysia: US$370.38bn
5. India: US$343.93bn
6. Saudi Arabia: US$266.43bn
7. Brazil: US$192.69bn
8. Indonesia: US$181.83bn
9. Iraq: US$78.79bn
10. Nigeria: US$142.27bn
* Illicit financial flow from India (in $ million)
2002: 7,893
2003: 10,068
2004: 18,697
2005: 20,021
2006: 27,569
2007: 33,108
2008: 44,645
2009: 28,615
2010: 68,383
2011: 84,933
TOTAL: 343,932
