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.
Nishith Desai, founder of Nishith Desai Associates, an international tax and corporate law firm based in Mumbai, argues that corrupt officials and government agencies have more to do with illicit money than tax avoidance in the private sector, which he says is more transparent than in the past.
As individual tax rates dropped — from as high as 97.5% in the 1970s to about 30% today — the major motivation for tax avoidance evaporated. In its wake however, is a cultural habit of evasion, which is only now beginning to erode, he said.
Desai said officials, who face public scrutiny when they accumulate wealth while on a low government salary, have more motivation to stash illicit money overseas than company executives, and the government, as India’s biggest trader, likely indulges in more manipulation of export and import contracts.
Much private-sector corruption is also done under government compulsion, he said. Though economic liberalization ended the so called License Raj –during which New Delhi kept tight, lucrative control of business permits — many opportunities for corruption remain.
Private players pouring into sectors like telecoms and banking still need licenses. This week, the telecom minister resigned over alleged licensing irregularities that may have cost the treasury 1.76 trillion rupees ($39 billion).
The government is also the major intermediary in land deals. Desai and others say bribes are common in land sales, which are proliferating as India’s growth spurs the development of mines, factories, buildings and special economic zones.
Regardless of debate about who is most to blame, the report shows the tide of money has been unrelenting even as India makes some efforts to clamp down on the hidden economy.
The government has ramped up tax collection efforts and renegotiated its tax treaty with Switzerland to give it greater access to information for investigations of tax fraud. It already has good access to information from Mauritius, a major offshore financial center for rich Indians and companies.
Many hope the government’s ambitious plan to give every citizen a unique identity number will also widen the tax net and make evasion harder. And under pressure from opposition politicians, the Congress Party in recent weeks forced three high-ranking officials including the telecoms minister to step down amid corruption allegations. But critics say such gestures are cosmetic and will do little to stem growing popular frustration at India’s elite.
“Catch some of those high profile guys, Bollywood fellows and cricket stars and make an example out of them,” Kar said. “If they don’t address this now, they’re going to be stuck with a much bigger problem which will tear at the heart of India. Mark my words. People are losing patience.”
Pakistani Anti-graft body wants travel ban on Nawaz Sharif, kin
Pakistan’s anti-corruption watchdog has asked authorities to place ousted premier Nawaz Sharif, his daughter and son-in-law on the Exit Control List to prevent them from leaving the country.
The National Accountability Bureau (NAB) sent a formal request to the ministry of interior. The interior ministry officials confirmed that the NAB wrote that names of Sharif, his daughter Maryam Nawaz and son-in-law Capt (retd) Muhammad Safdar should be put on the Exit Control List (ECL), which listed individuals not allowed to leave Pakistan.
The NAB argued that as the trial of the three nears its conclusion, it is feared that they would leave the country.
Earlier, a similar request to place name of finance minister Ishaq Dar on ECL was not accepted, allowing him to go to London and never return.
Sharif, 68, and his family this week filed an application with the accountability court seeking a fortnight’s exemption from personal appearance from February 19 onwards to let them go to London to see Sharif’s ailing wife. Three cases were filed against Sharif and his family last year, including Avenfield properties, Azizia & Hill Metal Establishment, and Flagship Investments.
Maryam and Safdar are accused only in Avenfield properties case. The NAB had filed two supplementary references against Sharif, his sons Hasan and Hussain regarding Al-Azizia Steel Mills & Hill Metal Establishment and Flagship Investment cases.
Pakistan “breaches obligations’ on nuclear arms reduction, UN court told
The Hague: Pakistan is violating its “obligations” to the international community by failing to reduce its nuclear arsenal, the Marshall Islands told the UN’s highest court on Tuesday.
The small Pacific Island nation is this week launching three unusual cases against India, Pakistan and Britain before the International Court of Justice.
Majuro wants to put a new spotlight on the global nuclear threat, its lawyers said yesterday, by using its own experience with massive US-led nuclear tests in the 1940s and 1950s.
“Pakistan is in breach of its obligations owed to the international community as a whole,” when it comes to reducing its nuclear stockpile, said Nicholas Grief, one of the island nation’s lawyers.
DeBrum warned that even a “limited nuclear war” involving the two countries would “threaten the existence” of his island nation people.
Pakistan and India have fought three wars since independence from Britain in 1947, two of them over the disputed Himalayan territory of Kashmir.
In 1998, the rival neighbours both demonstrated nuclear weapons capability.
The ICJ’s judges are holding hearings for the next week and a half to decide whether it is competent to hear the lawsuits brought against India and Pakistan — neither of which have signed the 1968 nuclear Non-Proliferation Treaty (NPT).
A third hearing against Britain — which has signed the NPT — scheduled to start on Wednesday will be devoted to “preliminary objections” raised by London.
The Marshalls initially sought to bring a case against nine countries it said possessed nuclear arms: Britain, China, France, India, Israel, North Korea, Pakistan, Russia and the United States.
Israel has never admitted to having nuclear weapons.
But the Hague-based ICJ, set up in 1945 to rule in disputes between states, has only admitted three cases against Britain, India and Pakistan, because they have accepted the ICJ’s compulsory jurisdiction.
Pakistan’s lawyers did not attend Tuesday’s hearings.
It did however file a counter-claim against Majuro’s allegations saying “the court has no jurisdiction to deal with the application” and insisting that the case is “not admissible”, said ICJ President Ronny Abraham.
Bangladesh to drop Islam as official religion following attacks on Hindus
New Delhi: Bangladesh is likely to drop Islam as its official religion following a series of attacks on people from other faiths in the country. The country’s Supreme Court is hearing a plea challenging the status of the official religion of the country to Islam.
Bangladesh, which was declared a secular country after its formation in 1971, was declared an Islamic country following a constitutional amendment in 1988.
According to a report in the Daily Mail, the plea has challenged the declaration of Islam as the national religion of the country.
The move is being supported by leaders from the minority communities like Hindus, Christians and Muslim minority Shiites.
Bangladesh has 90 per cent of Muslims, 8 per cent Hindus and remaining constitutes Christians and Muslim minority Shiites.
In last month, a Hindu priest was hacked to death following an attack on a temple in Panchgarh district. Two others were seriously injured in the attack. There have been several lethal attacks on writers and bloggers.
According to a report in the Independent, Islamist groups Jumatul Mujahedeen Bangladesh and Ansarullah Bangla Team are believed to have carried out at least seven attacks on foreign and minority people in Bangladesh in the past year.