The Indian government has commissioned an in-depth study to estimate unaccounted income and wealth being held within and outside India. This study, engaging three institutions, aims to bring out the nature of activities that encourage money laundering and its ramifications on national security. The study has already been in progress since March this year, and is expected to be completed within a period of 18 months.
The study, according to an official release, is being undertaken by the National Institute of Public Finance and Policy (NIPFP), the National Institute of Financial Management (NIFM), and the National Council of Applied Economic Research (NCAER).
The corruption-tainted United Progressive Alliance (UPA) government in New Delhi has been on the back foot for more than a year now, and has been unable to brush off the mud that’s been flung at it by political detractors, irrespective of ideological extremes. While this endeavour might come across as one by the government trying to clean up its act, the security twist added to the mandate of the study may be seen as one having an axe to grind.
The terms of reference of the study are as follows:
- To assess/survey unaccounted income and wealth both inside and outside the country.
- To profile the nature of activities engendering money laundering both inside and outside the country with its ramifications on national security.
- To identify important sectors of economy in which unaccounted money is generated and examine causes and conditions that result in generation of unaccounted money.
- To examine the methods employed in generation of unaccounted money and conversion of the same into accounted money.
- To suggest ways and means for detection and prevention of unaccounted money and bringing the same into the mainstream of economy.
- To suggest methods to be employed for bringing to tax unaccounted money kept outside India.
- To estimate the quantum of non-payment of tax due to evasion by registered corporate bodies.
The trigger for this study appeared to be a recent study by the the US-based Global Financial Integrity which had estimated that tax evasion, crime, and corruption, removed gross illicit assets from India worth US $462 billion between 1948 and 2002. The Drivers and Dynamics of Illicit Financial Flows from India: 1948-2008 report released in November 2010 had said that the faster rates of economic growth, since economic reform started in 1991, had led to a deterioration of income distribution which led to more illicit flows from the country.
While the government did allude to the report in question, what it did not was mention GFI’s Illicit Financial Flows from Developing Countries 2000–2009 report. According to this one, India lost $104 billion in illicit financial flows between 2000 and 2008. The report, published in January this year, had used World Bank and IMF data to estimate the quantity and patterns of illicit financial flows coming out of developing countries. The study was also a partial indictment of the Manmohan Singh government, now in its second tenure, which had been in power when much of this leakage took place.
The government said it “has been seized of the matter” but added that the estimates were based on various “unverifiable assumptions and approximations.” Now, it wants to do its own study. It would be premature to say whether this would be a hogwash, but the terms of references are likely to be seen with scepticism. On one hand, adding the security angle could well have been done with a political motive. On the other, questioning the sources and softpedalling corporates might see a much tempered down report.