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China Beats India On Black Money And Yet..

An economist from Washington-based think tank Global Financial Integrity (GFI) quoted in the Business Standard today says India lost $213 billion in illegal flow of money out of the country between 1948 and 2008. That would presently be worth $462 billion, assuming standard rates of return - all money should earn returns, shouldn't it  ? The other oft-quoted figure for black money stashed overseas  is $1.4 trillion.

The economist, Dev Kar, has an interesting point. He says that faster rates of growth in the post reform period have not been inclusive in that the income distribution is more skewed today, which in turn has driven illicit flows from the country. Thus, the result does not hold in the pre-reform period when growth rates were low and income distribution was more equitable.

This is an interesting point. And not surprising in some ways. All you have to look at China which has grown at 10% or thereabouts for some 30 years ! And leads the league tables for illicit outflows. The reasons for the outflows are very similar to India and, I reckon, quite boring to get into repeatedly- if you really want to know, its bribery, theft and kickbacks. To get a sense of the magnitude, I reproduce figures from the Ford Foundation funded GFI, which studied illicit flows from 2000-2008.






































CountryUSD $ BillionRank in Asia 
China22001 
Malaysia2912 
Philippines1093 
Indonesia1044 
India1044

Incidentally, Russia ($427 bn), Mexico ($416 bn), Saudi Arabia ($302 bn) are also ahead of India which is now ranked 15th among developing countries - if its any  comfort to you, the reader of this blog. Also, India slipped in the ranks because, according to the GFI, the oil exporting countries, shot ahead. I  hope we don't make up with as a `mineral resource' exporting country.

To me the big challenge today is equitable distribution. Fact is we would all care less about black money (and dismiss it as a tax problem)  if there was a greater sense of equitable distribution. Here, China is better off than India -  it has greater equitable distribution despite higher illicit outflows. How do you measure the first part  ? Well, you could use standard metrics, like absolute poverty, access to education, healthcare, child mortality and so on.

Which brings us to a fundamental point on quality of governance. Countries like China, or for that matter, Malaysia and Indonesia evidently deliver better governance to their citizens than India does. In India, we are grappling with intensifying corruption coupled with weak governance. No prizes for guessing. Its the same few people who we depend on and let us down both ways.

Good Governance, Bad Folks

In China, my sense is that these two sets do not necessarily or always overlap. The proportion of honest people delivering good governance seems higher than those who are not. And its possible even dishonest people are delivering good governance. This is often quoted by developmental institutions as being the classic South East Asia paradigm - not including Singapore.

The curse of rapid and unbridled growth is precisely the skew that causes, among other things, illicit outflows. Of course illicit outflows is only one manifestation of inequitable economic growth. Outflows or not, the damage to the internal economy and society can be high, as organisations like GFI also argue.  The only solution is to get a hang of things and clean up the system as far as possible.

In some ways, this is tantamount to  accepting that 20 years have gone by without our wrapping our arms around the problems thrown up by sudden growth. Its true. On the other hand, its  never too late. One way to view the noise presently being generated through the multiple corruption scandals coming to light is precisely that...a giant mop trying hard to clean up a dirty floor that has  been untouched for decades.

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