Black Money Outflows Growing Faster Than GDP – Livemint – 17-Dec-2014

December 25, 2014 - Uncategorized

Illicit money outflows from India rose over a period of nine years to hit $94.76 billion in 2012, placing it in third place behind China and Russia as a source of black or unaccounted money, according to fresh data from Global Financial Integrity (GFI), a US-based not-for-profit research organization. Since 2003, when GFI started compiling these statistics, illicit outflows from India have grown at an annual average of 25%—much higher than the growth in nominal economic output. Consequently, illicit outflows have also been increasing as a proportion of gross domestic product (GDP) in recent years (see chart). In 2012, the last year for which data is available, illicit outflows from India accounted for 5.1% of GDP. That still compares well with Malaysia’s 16% and Russia’s 6.1%. GFI measures illicit financial outflows using two sources: one, outflows owing to deliberate trade misinvoicing such as exporters showing lower receipts for higher value of overseas sales, and two, outflows owing to leakages in balance of payments. Therefore, its sources exclude services and intangible trade as well as criminal activities, such as the drug trade, human trafficking, much of counterfeiting, etc., which are massive sources of black money. As Mint pointed out in an earlier story on this topic, black money is difficult to measure accurately. Indeed, some estimates such as those from the World Bank’s put India’s shadow economy at close to one-fifth of economic output. Illicit outflows are higher than foreign direct investment (FDI) in emerging economies, highlighting the importance of curbing black money. In India, except for 2009, illicit outflows have trumped inbound FDI every year since 2003, as Chart 2 shows. According to the report, from 2003 to 2012, developing countries lost $6.6 trillion to illicit outflows, with Asia remaining the largest contributor, accounting for 40% of total illicit financial outflows from the developing world during this period. Clearly, India is not alone in facing this problem.

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