Money that went abroad illegally in 2007 = Estimated cost of linking india’s rivers

Vipul Vivekv 

About Rs 5.3 lakh crore (at the current exchange rate of Rs 64/US dollar) flowed out of India illegaly in 2007, a government-commissioned report on black money has revealed. The amount is 5% less than the water resources ministry’s estimates (Rs 5.6 lakh crore) of the cost of linking the country’s rivers to address water scarcity and flooding.

Economic & Political Weekly, in collaboration with Business Standard, recently uploaded the National Institute of Public Finance and Policy (NIPFP) report on black money. The 1,200-page report, whose highlights Business Standard reported on May 3, 2017, and The Hindu reported in August 2014, is yet to be made public.

The report was commissioned in 2012 by and presented in 2013 to the Central Board of Direct Taxes (CBDT) under the Congress-led United Progressive Alliance (UPA) government. The report has not been released even by the current National Democratic Alliance (NDA) government.

The pharmaceuticals sector generated Rs 46,200 crore black money in 2009-10–about the same as the amount Air India’s chairman said the airline needs in 2017 for a turnaround, according to this report in The Indian Express on May 15, 2017.

In 2010, under- or over-billing exports from or imports to India cumulatively generated about Rs 2.3 lakh crore (at the current exchange rate of Rs 64/$) of black money, 28% more than what the government plans to spend on the rural sector (Rs 1.87 lakh crore) and 4% less than what it has budgeted for roads, railways, shipping and other modes of transport (Rs 2.4 lakh crore) in 2017-18.

The flow of black money abroad ranged from less than 1% to 7% of India’s gross domestic product (GDP) between 2000 and 2010, according to the NIPFP report.

Exports are used for illicit outflows to countries such as the United States, the United Kingdom, China and Mexico. For countries such as Hong Kong, Netherlands, Switzerland and Singapore, both exports and imports are associated with illicit inflows or outflows.

While Singapore tops the illicit inflow chart, Switzerland tops the list of outflow destinations.

The NIPFP report identified 11 sectors as “more prone to generation or utilisation of unaccounted incomes”: chemicals and chemical products, construction, land transport, agriculture, petroleum products, iron and metallic products, electricity, communication, mining, machinery manufacturing, and trade and business services.

Real estate and gold and jewellery were identified as the sectors where major unaccounted incomes might be held as wealth.

Professionals big tax evaders

“At least for medical professionals, fashion designers, legal professionals,” the NIPFP report pointed out, “there is large scope for under/non-reporting income due to high incidence of cash/without-bill transactions.”

There is no relation between returns of income and service tax filed by professionals, clearly indicating rampant non/under-reporting of incomes and inflation of expenses, the report argued.

The report has suggested measures such as establishing benchmarks for likely range of professional expenses and improvements in tax forms to improve linkage between service tax payments and income.

Mining, pharma need better regulation

“Inadequate monitoring and regulation has resulted in extensive misuse of licences resulting in over-mining supported by widespread corruption,” the report said.

“The average unaccounted incomes as a percentage of reported GDP from the minerals… for the decade 2001-0 [sic]” has been estimated to be 10.32%, excluding illegal mining.

An earlier committee set up under Justice M B Shah by the UPA government to study illegal mining in seven states was abruptly wound up three years after it was constituted in 2010. The Shah committee could submit a final report only on Karnataka.

Lack of coordination between multiple regulatory agencies in the pharmaceuticalsector–a representative for the chemicals industry–has led to substantial under-reporting of sales and sale of spurious drugs between 2000 and 2010, the NIPFP report argued.

The share of substandard and spurious drugs (at licensed retail outlets and government stores, put together) has been estimated to be 3.16% and 0.0245%, respectively, according to The National Drugs Survey 2014-16 based on tests of 47,012 drugs samples.