'Black money' burning a hole in India's finances
WITH the value of the rupee plummeting, India is trying to shore up its finances, with the government outlining a plan to tackle the country's rampant "black money" problem.
WITH the value of the rupee plummeting, India is trying to shore up its finances, with the government outlining a plan to tackle the country's rampant "black money" problem.An ill-defined but massive amount of Indian money and "illicit external assets" - believed to run into the tens of billions of dollars - is currently stashed in foreign accounts, the government believes, most of it routed through Singapore and Mauritius to secret European accounts.The government's white paper on black money alleges much of the money hidden overseas is ill-gotten, through drug trafficking or other crime, and money that is legitimately earned but sent overseas to avoid tax.A report by India's ministry of finance cites a Swiss National Bank statement at the end of 2010, which said that Indians held about $US1.65 billion in Swiss accounts alone, while other reports suggest Indians hold more money there than any other nationality.An IMF study estimated the flight of capital from India at about $US88 billion between 1971 and 1997.Beyond that, the government concedes, it has little idea of how much black money has left India and where it has gone.The paper proposes the establishment of Lokpal (ombudsmen), at national and state level, to investigate allegations of corruption and money laundering.The report also favours tax incentives for the use of debit and credit cards for small day-to-day transactions to curb the underground economy.India's Finance Minister, and potentially the next president of the world's largest democracy, Pranab Mukherjee, said India's massive black economy was crippling development. He said the poor were hurt most by corruption.Others said India's budgetary woes could be solved if only some of its hidden money could be retrieved."According to estimates, the total black money stashed abroad is estimated at roughly $US797 billion, which is about 50 per cent of India's gross domestic product and is nine times the size of India's fiscal deficit," the Secretary-General of the Federation of Indian Chambers of Commerce and Industry,Rajiv Kumar, said."Even if 10 per cent of such black money is brought back to the system, India can generate a fiscal surplus," Dr Kumar said.The rupee yesterday fell to its lowest ever level of 56.38 to the US dollar, having lost nearly a quarter of its value since this time last year. Indian stocks have sunk with it.Investor confidence in the India growth story has disappeared as the world turns risk averse on the back of the eurozone crisis.The Sensex on Wednesday closed below 16,000 points, the lowest figure since January, and follows a financial year in 2011-12 where it lost 10.5 per cent.The weakening rupee is damaging the Indian economy, and many young Indians have abandoned plans to study overseas because it has become too expensive.