Indians exported goods and services worth at least Rs 17 trillion over the past four decades but did not remit an equivalent amount in foreign exchange, an HT analysis of classified central bank data shows. This is probably the first measure of how much the economy bled from tax evaders stashing funds offshore.
The amount accounts for a fourth of India’s current Gross Domestic Product. The money, substantially higher now when adjusted against the value of the US dollar, is believed to have been parked in tax havens.
The HT analysis of the Reserve Bank of India (RBI) data, gleaned from 1972 to 2015, shows that 95% of Rs 17 trillion-worth exports were siphoned off over the past 10 years.
The RBI data is based on 188,605 export transactions that were not remitted home -- as is required under Indian foreign exchange rules. It’s possible that some payments were stuck due to genuine reasons such as defaults during economic downturns, but data show a consistent uptick in under-recoveries over the years.
Phoney export deals are but only one way of stashing illegal funds abroad. Businesses under-invoice their exports and over-invoice imports from tax havens such as Singapore, UAE and Hong Kong. Money laundering in stocks is also among a variety of activities long suspected to have been used to avoid taxes.
“It’s is very difficult to estimate the black money stashed abroad. But this route (export) is definitely one of the ways in which money is being parked abroad,” said Laveesh Bhandari, economist co-author of a book on corruption.
Gauging the quantum of illicit funds, or “black money”, Indians hold has been difficult, in part because of lack of data. Over time, Indian regulators have moved to curb tax crimes, including signing stronger disclosure pacts with foreign countries.
Much of the campaign against “black money” has been led by the Supreme Court. In 2011, the top court ordered the appointed a Special Investigation Team (SIT) to make an assessment of dishonest wealth, both domestic and abroad. The panel was formed in 2014, shortly after Narendra Modi rode to power, pitching repatriation of “black money” of Indians parked abroad as part of his election campaign.
Thereafter, the SIT turned to the central bank for help with unearthing dodgy export deals. It wasn’t immediately clear what the probe panel planned to do with the data.
Telephone calls and text messages to SIT chairman MB Shah for a response remained unanswered. A detailed email to RBI spokesperson did not elicit a response.
In India, past studies on untaxed wealth or illegal outward remittances have been few and far between, and hardly comprehensive or consistent, hurting the fight against corruption which is estimated to cost India 1-2% of gross domestic product ever year.
The latest RBI exercise comes closest to being definitive on at least phoney exports.
In 1988, a rare study by the Central Economic Intelligence Bureau (CEIB) estimated that Rs 13,000 crore of exports were not remitted to India. Some of the amount was recovered but, according to the latest RBI data, realisation of more than Rs 3200 crores from that period is still pending.
“Exporters found it convenient to park money outside with a little bit of help from low ranking banking officials. Since there was no computerized data they could conceal it with the help of bank officials,” said Ajay Agnihotri, a former CEIB assistant director general, who carried out the study on phoney exports.
India ranked fourth in black money outflows with more than Rs 500 billion siphoned out of the country a year during 2004-2013, the Global Financial Integrity (GFI’s) 2015 report said.