At the outset, let me be very clear that I am neither pro-BJP or pro-Congress. I left India 36 years ago and I am out of touch with local politics and neither am I interested in their mud-slinging match. But there are certain facts which I need to make clear.
1. To say that "Kar reports a capital flight figure of anywhere between $4.7 billion to $22.7 billion annually between 2002-06" is total misinterpretation of the report. The $4.7 billion figure represents only one component of the higher end of the range due to unrecorded capital transactions in India's balance of payments accounts. In citing the range, Mr. Ramesh left out the much larger Trade Mispricing component of the higher end of the range of illicit flows which is US$27.3 billion. So the correct range that Mr. Ramesh should have cited is US$22.7 to US$27.3 billion and not US$4.7 billion to US$22.7 billion. Any economist familiar with the capital flight research should be able to interpret the results of the GFI study.
2. Trade policy reforms do not have a direct bearing on the propensity to misprice trade which is mainly driven by the same motives that drive capital flight--to circumvent a country's tax and foreign exchange regulations so as to shelter wealth abroad away from the reach of domestic regulatory agencies.
3. The methodology is NOT based on unit value realizations as Mr. ramesh claims. I don't know how he came to that conclusion when the report describes quite clearly the methodology underlying trade mispricing. It is quite straightforward. India's exports to and imports from each country (totaling the world) is compared against what each of its trading partner says it imports from and exports to india, after deducting the cost of freight and insurance. Illicit outflows occur when traders under-invoice exports (and keep the balance abroad) and/or over-invoice imports (and ask the foreign exporting partner to stash the excess payment in a foreign bank). The IMF's Direction of Trade Statistics was used to compare trade values (not unit values as Mr. Ramesh misinterprets) on a bilateral basis. past researchers also found that capital flight from India involves trade mispricing. The trade mispricing model is a well-established model that was used by eminent economists including Prof. Jagdish Bhagwati.
4. The errors and omissions in the balance of payments is NOT A RELIABLE INDICATOR OF CAPITAL FLIGHT. I have repeatedly stated this in my report. Any economist familiar with the capital flight literature knows this. The net errors and omission line also reflects errors in measurement of balance of payments estimates. Therefore, economists have completed the NEO estimates with short term portfolio capital flows in a measure know as the Broad Hot Money measure (as opposed to the narrow Hot Money measure) that only includes the NEO.
5. I wish both Mr. ramesh and Mr. Advani all the best in this elections--may thebest party win. But whichever pary is able to build a coalition, please take action on the issue of illicit flows and try to recover at least a part of the loot stashed away in tax havens, offshore financial centers and even traditional multinational banks abroad. But the Government of India would need to do its homework before that would be possible. International banks have their own lawyers and the government would have to win the fight in a court of law. It will not be easy but can be done if the government follows a careful strategy that has been used by other governments (like the US) successfully.
Re: Re: Illicit Financial Flows from India: Reply by Dev Kar
by kitttigadu on Apr 21, 2009 09:26 AM
It seems like the bottom has been knocked of Jairam Ramesh's nonsense by Mr.Kar. Most people do not have the time to dig up the misrepresentation by the likes of JaiRavan Ramesh, and hence the fellow thinks that he can get away with anything.
Re: Re: Illicit Financial Flows from India: Reply by Dev Kar
by Dev Kar on Apr 25, 2009 04:09 AM
Hi Tarun:
You are absolutely right. I sent a rejoinder to Mr. Ashok Desai's article "Advani's Faux Pas" which was published a few days ago. It contained a number of factual erros regarding a report I wrote for the Global Financial Integrity. Mr. Desai goes so far as to say that the government and the public should "studiously ignore" the issue of black money outflows because the estimates are very small in reality. Now while The Telegraph ran that article without even checking with me, they told me (when I call them this morning) that they have sent my article to Mr. Desai! Can you believe that? What kind of journalistic ethics is that? I think the paper is completely in the pocket of the CPI (M) which is in league with the ruling Congress. They don't want the truth to come out.
He says that there is INR 6,88,000 Cr lying in the swiss bank accounts unaccounted for. i.e. at an exchange rate of an average INR 50 for every USD translates to USD 137.70 Billion i.e. 13% of a Trillion USD.
Now, this money being unaccounted, Swiss banks pay the lowest interest if at all, and perhaps no interest as the primary purpose of keeping it there is for safeguarding rather than the returns.
Swiss banks dont sit idle on this money. They lend to the Western world economies at decent rates but to good credit rating customers as security is important rather than the returns. So for Western economy this is one of the lowest cost of funds available.
Now, with recession raging like wildfire in the West swalloowing Investment bank after investment bank does any sane thinking person in India or elsewhere to believe that this moron Advani will be allowed by the Western Govts to pull USD 137.70 Billions? How much is this money? This is 13.77% of Indias GDP.
Assume that Advani got this money into the country. What will he do with it immediately? Will he prosecute all those hoarders of this black money or will he reward them with this money by allowing to convert into white?
What kind of law Advani is talking about?
You not only allow black money but also good interest rates on it after putting it in investmests in India. Then what is the difference between Chiddu and you? Chiddu allowed VDIS after VDIS!
if you insist that advani is lying, then what is the truth. you are only trying to fool the whole nation while making a big fool of yourself. atleast some of your colleagues are saying that congress is doing its work dilligently in getting the money back. what has loads of your educational qualifactions done to you!!
Now that Swiss Govt has changed its secrecy policy and many countries are taking similar steps to get back illegaly stashed cash, what is wrong in Advani's statements? And what is the reason for many politicians to counter such a good suggestion?
If Advani is wrong bring your own govt plan to bring back the illegal swiss money looted by your fellow congress men including Soniaji and Rahulji. Who own the account 'lotus' in swiss back. When Rahulji arrested by FBI in Boston with millions of $$ what was the source of that moeny. What happend to that money. He never did porper schooling or he never hold a job to have that much moeny. So what is the source.
Probably, Congress leader Jairam Ramesh also have several Swiss Bank accounts or he is defending his madame with Swiss Bank accounts filled with BOFORs scam money.
They are on a weak wicket on terrorism, governance, economic growth, leadership, and vision. So Advani found a new item and he hopes to create some myth.
He dont want anything to happen to swiss money account holders because most of them vote BJP!! The rich and upper middle class people. He just want to make a smokescreen as his last effort. He never did anything about it when he was Dy Pm and will never do anything on it in future. He just need an issue to hang on for 1 more month.
