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Report Shows India Lost Billions Due to Tax Evasion, Corruption

Global Financial Integrity report on India
Global Financial Integrity report on India

Tax evasion and corruption have cost India hundreds of billions of dollars according to a new report. The finding comes at a time when the issue of graft has led to a political storm in the country.

U.S.-based research and advocacy group Global Financial Integrity's report estimates that $462 billion in illicit money has been taken out of India over the last six decades.

Much of that money was siphoned out after India opened up its economy in 1991. The report estimates that an average $16 billion a year was funneled overseas from 2002 to 2006.

Report author Dev Kar says the illicit transfers came through tax evasion and corruption, and caused a huge loss for India. He says private businesses are the main culprits.

"The high net worth individuals and the corporations, basically it is the private sector that sends money out through illegal means," Kar said. "The government itself does not take part in illicit transfers. It is corrupt politicians, corrupt individuals in the private sector, business men, corporations etc."

Main causes

Kar says the primary driver of illicit flows is trade mispricing. That is, declaring a lower-than- market price for goods which are exported, and higher-than-market price for good which are imported.

The report says these outflows of money contribute to deepening poverty and a widening gap between the rich and the poor.

Transparency International ranked India 87th out of 178 countries on its 2010 International Corruption Perceptions Index.

Anupama Jha, executive director of Transparency International's India chapter in New Delhi, says what affects poor people most in the country is not corruption in the private sector, but corruption in the administration.

"Services that they should have got for free, they actually had to bribe officials in order to get those services," Jha said. "Those services included banking, housing services, police services, so on and so forth. So the fact that poor actually has to bribe because he has no other way out, that is something very, very alarming. What is also alarming is the fact that there is no effort, at least common people do not see any effort made by the government to actually curtail corruption."

Political scandals

In recent weeks, the issue of corruption has raised a political storm, and there are growing demands for accountability for a series of corruption scandals involving government officials.

Opposition parties are demanding the prosecution of former telecommunications minister A. Raja. He resigned recently after federal auditors said the government suffered a loss of up to $39 billion due to the sale of licenses for airwaves used to transmit mobile phone calls at undervalued rates. Several projects related to the Commonwealth Games that India staged in October were also allegedly bedeviled with corruption.