WITH the value of the rupee plummeting, India is trying to bring more of them home, 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 tens of billions of US dollars is stashed in foreign accounts, the government believes, most of it routed through Singapore and Mauritius to secret European accounts.
The government's colourfully titled White Paper on Black Money alleges some of the hidden money is ill-gotten, through drug-trafficking, corruption or other crime. But for the most part, it is legitimately earned and spirited overseas to avoid tax.
The amount of hidden money is difficult to determine, and the estimates jump around significantly.
The 97-page report by the Ministry of Finance cites a Swiss National Bank statement at the end of 2010 saying that Indians held about $US1.65 billion in Swiss accounts alone. Other reports suggest Indians hold more money there than any other nationality.
An IMF study estimated the flight of capital at about $US88 billion between 1971 and 1997.
The government concedes it has little idea of how much black money has disappeared and where it has gone.
The paper proposes the establishment of Lokpal ombudsmen at national and state level, to investigate corruption and money laundering. India has been wrestling with that idea for more than a year to little progress.
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 the 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 of rupees stashed abroad is roughly equivalent to $US797 billion, which is about 50 per cent of India's GDP, and nine times the size of the fiscal deficit, said Dr Rajiv Kumar, secretary-general of the Federation of Indian Chambers of Commerce and Industry.
"Even if 10 per cent of such black money is brought back to the system, India can generate a fiscal surplus."
India's focus on getting back its lost rupees comes as the currency is worth less and less, almost every day.
Yesterday, the currency fell to its lowest-ever level of 56.38 rupees to the US dollar, having lost nearly a quarter of its value 24.8 per cent since this time last year.
Indian stocks have sunk with it. Investor confidence in the Indian growth story has disappeared as the world turns risk averse on the back of the eurozone crisis.
On Wednesday, the Sensex closed below 16,000 points, the lowest figure since January, and follows a 2011-12 financial year loss of 10.5 per cent.
The weakening rupee is damaging a broad swath of the economy, and many young Indians have abandoned plans to study overseas because it has become to expensive. But most dramatic so far has been the impact on domestic fuel.
Already in Delhi, queues, some several kilometres in length, have been forming at petrol stations. The government announced on Wednesday a price increase of 7.54 rupees, the
largest jump in a decade. Cooking gas and diesel prices are also expected to be raised soon.
The government says the falling rupee, combined with high crude oil prices internationally, left it with no option but to raise prices, a decision that has brought opprobrium on an already-unpopular government.
Drivers in Delhi now pay 73.18 rupees ($A1.32) a litre for petrol.
Frequently Asked Questions about this Article…
What is meant by 'black money' in India and how large is the problem?
India's 'black money' refers to funds hidden overseas or kept outside the formal tax system. The government's White Paper on Black Money says the total is ill-defined but massive: Indians held about US$1.65 billion in Swiss accounts at the end of 2010, an IMF study put capital flight at roughly US$88 billion between 1971 and 1997, and some estimates value rupees stashed abroad at about US$797 billion (around 50% of India’s GDP). The exact size is difficult to determine.
How is the Indian government proposing to bring back money stashed overseas?
The White Paper outlines a plan that includes stronger anti‑corruption measures such as establishing Lokpal ombudsmen, and incentives to reduce cash transactions (for example tax incentives to encourage debit and credit card use). The report also focuses on tracking funds routed through hubs like Singapore and Mauritius to secret European accounts.
What are Lokpal ombudsmen and how would they help fight corruption and money laundering?
Lokpal are proposed independent ombudsmen at national and state levels to investigate corruption and money laundering. The White Paper recommends creating these bodies to improve oversight and help identify and retrieve hidden or illicit funds.
Could recovering black money help India's budget problems or fiscal deficit?
Yes — the report and industry figures suggest large sums are held offshore. Dr Rajiv Kumar of the FICCI noted the estimate of offshore rupees is roughly nine times the fiscal deficit. The paper suggests that even recovering 10% of that hidden money could help India generate a fiscal surplus.
How has the falling rupee affected investors and Indian markets?
The rupee weakened to a record low of 56.38 to the US dollar and lost about 24.8% of its value year‑on‑year, which has dented investor confidence. Indian stocks have fallen: the Sensex closed below 16,000 points (its lowest since January) and the market recorded a 10.5% loss in the 2011–12 financial year, with global risk aversion (including the eurozone crisis) weighing on sentiment.
What impact is the weak rupee having on everyday costs for consumers?
The weakening rupee, combined with high international oil prices, has raised domestic fuel costs. The government approved a petrol price increase of 7.54 rupees — the largest jump in a decade — pushing petrol in Delhi to about 73.18 rupees per litre. Cooking gas and diesel prices were also expected to rise, and some Indians have put off plans to study overseas because costs have become more expensive.
Where does the government believe the hidden Indian money is routed and stored?
The White Paper says much of the offshore money is routed through financial hubs such as Singapore and Mauritius and ultimately ends up in secret European accounts. It also cites Swiss data pointing to significant Indian holdings there.
Are the offshore funds described as criminal proceeds or legitimately earned money?
The White Paper states some offshore funds are ill‑gotten — tied to drug trafficking, corruption or other crime — but for the most part the money is believed to be legitimately earned and moved overseas to avoid paying tax.
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