Black Money Flowing Back to India

NEW DELHI - Large amounts of an estimated US$150 billion (S$268 billion) - double India's foreign exchange reserves - that Indians had stashed away illegally in secret accounts abroad are making their way back into the country.

These account holders have been spooked by US-led crackdowns and probes, after the Sept 11, 2001 attack, into hidden funds that could be used to support terrorism, The New Indian Express said.

Countries with secrecy laws that govern banking in their territories have been asked to disclose the details of these account holders, the report said.

Rather than risk being exposed, these Indians are choosing to bring what is commonly refered to as 'black money' back home.

An unidentified banker, quoted by the newspaper, said: 'Any discovery and disclosure of black money stashed in tax havens by Indian politicians, bureaucrats and businessmen could be damaging for them here.'

According to the paper, black money has been flowing out of India for the last 40 years. People have spirited away their cash to avoid paying taxes and to hide the money for which they are unable to cite a legitimate source.

The yearly generation of black money accounts for as much as 40 per cent of India's GDP, according to estimates provided by India's former chief vigilance commissioner N. Vittal in 2000.

Over the years, this amount has totalled more than US$150 billion in secret accounts in Switzerland, Luxembourg, Channel Islands, Cayman Islands and Gibraltar, the newspaper quoted banking sources as saying.

The hint of a change came when the monthly average of money coming home jumped to US$1.83 billion between April 2002 and January, after the US-led crackdown on terrorist funding started.

Reserve Bank of India figures for months in 2001 show an inflow averaging US$500 million.

Trying to build a profile of who these Indians with secret accounts are is tricky.

Politicians and government officials who are on the take make up some of them, businessmen rework their accounts to hide real profit margins and business houses under-invoice their exports and over-invoice their imports.

It is money made in these ways that is credited into accounts abroad.

But even ordinary people have gotten into the act.

Some Indian landlords who rent premises to foreign diplomats and multinational companies even insist that their foreigner tenants pay the rent for their premises into offshore accounts.

But the receipt for the rent shows just a nominal figure.

Reserve Bank experts have been cited as saying there were increasing instances of payments for services rendered in India being diverted to offshore accounts with more Indians travelling abroad and more foreign firms opening offices in India.