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Tuesday, 27 December 2011 00:00
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If Mauritius is used to channel black money to India, how do you explain GFI estimate of illicit flows from India?

 

While Anna Hazare restarts his campaign for a Lokpal to cleanse India’s corruption, Washington-based Global Financial Integrity (GFI) has provided him some more grist for his mill. According to GFI, which shot into fame for saying 50% of India’s economy was black, $128 billion was salted away from India to overseas locations between 2000 and 2009. The estimates are difficult to believe for a variety of reasons—while economic reforms focused on lowering tax-rates and increasing tax compliance, GFI says the proportion of the black economy rose from 27% in the pre-reforms days to 42% in the post-reforms period. It’s also difficult to reconcile this with the popular view that the tax-shelter given to Mauritius has been retained precisely to allow black money to come back to India to enjoy higher returns. If exports have been over-invoiced, the charge made these days, this would suggest people wanted to bring back money into India, not take it away. GFI is pointing in one direction, too many signs are pointing in the other.

Whether you believe the numbers or not, keep in mind that a

$13 billion annual stashing means well under 1% of GDP. Given that India’s tax-to-GDP ratio rose from 15.4 in 1990-91 to 17.5 in 2007-08, that would have brought in more funds into the white economy than any rush to catch those GFI thinks were stashing funds overseas. Lowering tax rates and working on better tax compliance—think GST and DTC—are a safer bet than the rush to Swiss vaults.


 

 

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