Indian Money held in Swiss Banks the Lowest Among BRICS Nations
Sai Krishna Muthyanolla
July 27, 2016
According to a recent annual report released by the Swiss National Bank, India slipped to 75th position in terms of money held by citizens of various countries in Swiss Banks. India also held the lowest money among the BRICS nations.
The term ‘Black Money’ conjures up images of inaccessible Swiss bank accounts in the Indian imagination. Therefore, data released by the Swiss Central Bank will bring cheer to every Indian. Not only has the amount of money held by Indian citizens in these accounts gone down, India ranks the lowest among the BRICS nations as measured by money stored in these accounts.
India has slipped to No. 75 at the end of 2015 from No. 61 a year before, as per an annual update on Swiss banks released by the Swiss National Bank (the nation’s Central Bank) in July. Further, this ranking is the lowest among the BRICS grouping of nations, of which India is a part.
Brazil was ranked No. 37, Russia had a ranking of 17, and China was in 28 spot while South Africa was at No. 60. Even Pakistan, with an economy which is almost 8 times smaller than India has more money in Swiss banks. Its ranking was 69.
Countries ranked above India include Philippines, Mauritius, Mexico and Indonesia. India was in the top 50 globally between 1996 and 2007, but started improving its rank after that. It was ranked 58 in 2013. The current ranking is its best in the last 2 decades.
Black money has always been an emotive issue with Indians, with every political party promising to bring back money stashed by Indians in offshore tax havens back. It has been an election issue in several elections, including the general election in 2014.
There is no reliable estimate of the quantum of Indian money in foreign tax havens. A submission by the CBI Director to the Supreme Court put the figure at $500 billion.
One reason why reliable estimates don’t exist is because illicit financial flows are shrouded in secrecy, as they move out of the country into international tax havens. Switzerland is just one in a network of more than 70 offshore financial centres around the world.
Even with India’s improved ranking, the BRICS countries rank high in terms of illicit financial flows, an issue that will be discussed in an upcoming consultation in New Delhi where civil society groups like Centre for Budget and Governance Accountability and the Financial Transparency Coalition will debate the issue in the context of the funding needs for development of these nations. The consultation is being organized by civil society groups including Oxfam India and People’s Budget Initiative to try and get civil society views on board the official BRICS summit.
Why are illicit financial flows such an emotive issue?
Consider the amount $682 billion. This is the estimate of illicit financial outflows from India by Global Financial Integrity from 1948-2012. This number is twice India’s external debt of around $350 billion, which means that if this amount were to be hypothetically brought back to India, it could be used to pay down the external debt and there would still be money left over.
Illicit financial flows are the result of tax evasion, corruption and crime. Money is shifted out of the country through means of trade mis-invoicing to a global shadow banking network. Tax evasion in a country like India deprives the government of money to fund essential social services like health and education, especially in a context where the tax to GDP ratio of the country is around 17.3 percent, which is low by BRICS standards. Less than 6 percent of citizens pay income tax.
Illicit flows reduce the money available to the government to finance poverty reduction programmes, social security schemes and build physical and social infrastructure. Reversing this trend would increase the Indian government’s fiscal capacity. It must be cautioned here that an improvement in the ranking of money held in Swiss banks does not mean that the outflow of black money from India has decreased. It just means that Indians are wary about storing it in the tax haven of Switzerland.
A pre-BRICS consultation, which has a session devoted to illicit financial flows, is being organized by civil society groups including Oxfam India, wada na todo abhiyan and peoples’ budget initiative on July 28-29.
Featured Image: Swiss Bank