MUMBAI: 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 D.C. 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 else. “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 gap between India's rich elite and the poor who number in the hundreds of millions has widened amid rapid economic growth over the past two decades, adding to social tensions, and the report says the funneling of wealth overseas has contributed to that inequality. “The high net worth individuals are the ones driving illicit flows,” Kar said. “The average Joe Bloke is eking out a living. He's not connected to the global world and even if he were, he doesn't have enough money.” The Ministry of Finance and spokespeople for the ruling Congress party 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. 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 percent in the 1970s to about 30 percent 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.
