V. Venkateswara Rao

While there is no official estimate available for the magnitude of India's black money, unofficial estimates put the figure at around $1.4 trillion (over Rs 70 lakh crore). This amount is more than one year's GDP. Most of this money has been stashed away in banks in ‘tax havens' abroad over the last 60 years by politicians, industrialists, bureaucrats and middle-men.

Transparency International, an international organisation that ranks countries on a Corruption Perception Index (CPI), ranked India 86th out of the 180 countries ranked by it in 2009. The CPI rates countries on a scale of zero to 10, with zero indicating high levels of corruption and 10, low. India's CPI score was a measly 3.4 out of 10, indicating fairly large levels of corruption.

The bulk of India's black money is stashed away in secret bank accounts in Switzerland. According to data provided by the Swiss Bankers Association, (but not confirmed by Swiss authorities), India has more black money than rest of the world combined. India tops the list with almost $1,456 billion in Swiss banks, followed by Russia $470 billion, the UK $390 billion, Ukraine $100 billion and China, with $96 billion.

Tax havens

It is embarrassing for any country to top the list of black-money holders. It has been found that about 80,000 Indians travel to Switzerland every year, of whom around 25,000 travel frequently, perhaps for some special reason.

The Prevention of Money Laundering Act, 2002 (PML Act) was enacted in 2002 and enforced in 2005 by the Government to prevent money laundering and to provide for attachment, seizure and confiscation of proceeds obtained from money laundering. However, its impact is yet to be felt in effectively curbing money laundering.

Pressure has been mounting on the Government from opposition parties seeking details of Indian account-holders in Swiss banks and banks in other tax havens. India has received the list of its nationals with bank accounts in Liechtenstein (a small German-speaking monarchy bordering Switzerland and Austria); it is yet to receive details of people with large deposits in Swiss banks because of a bilateral tax pact.


The black money that was stashed away abroad in the 1970s and 1980s has now multiplied manifold due to rupee depreciation and the interest earned on such funds. Now the same black money is being round-tripped for investment in India by some quarters, through FDI by shell companies, investment in the stock market through participatory notes (PNs), etc.

Participatory notes are instruments issued by FIIs to investors whose identity is not revealed even to SEBI (Securities and Exchange Board of India). However, this is only a small part of the black money stored abroad, that is flowing back to India.

Several countries, including the US, are persuading the Swiss government and Swiss banks to reveal the information on secret accounts.

Following US pressure, UBS (Union Bank of Switzerland) has shared information of bank accounts of top 250 US customers, out of a total 52,000 US client accounts.

Recently, the Indian government concluded the renegotiation for widening the ambit of its bilateral tax treaty with Switzerland to access information on Swiss bank accounts — a big step towards tracing Indian money stashed overseas.

If the estimates of Rs 70 lakh crore of Indian black money parked abroad are true, getting back this money can surely lift the 40 crore Indians living below poverty line out of poverty, or it can fund entire infrastructure building for the next 15-20 years. It can even educate all Indian children for next 50 years.

(The author is a finance professional.)

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(This article was published in the Business Line print edition dated August 13, 2010)
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