Illicit capital outflow from INDIA accelerated post liberalization

Illicit capital outflow from INDIA accelerated post liberalization(year 1991)

If we go by the recent report of US based organization "Global Financial Integrity". India's underground economy is closely tied to illicit financial outflows. The total present value of India's illicit assets held abroad ($462 billion) accounts for approximately 72 percent of India's underground economy. This means that almost three-quarters of the illicit assets comprising India's underground economy—which has been estimated to account for 50 percent of India's GDP (approximately $640 billion at the end of 2008)—ends up outside of the country.

The European/US banks become the safe deposit boxes for illicit funds to leave developing countries like INDIA.


Illicit capital outflow accelerated post liberalization ( Year 1991 onwards )

Deregulation and trade liberalization accelerated the outflow of illicit money from the Indian economy. Opportunities for trade mispricing grew and expansion of the global shadow financial system—particularly island tax havens—accommodated the increased outflow of India's illicit capital flight.

Economic impact on Indian society

There is a statistical correlation between larger volumes of illicit flows and deteriorating income distribution. The income gap between the rich and the poor has increased by many folds since 1991.
This deteriorating income distribution may, however, have created a new, more structural problem for macroeconomic management. The equality in income distribution may be a necessary condition to resolve macroeconomic fragility and ensure more sustained growth.

Global Financial Integrity