Economy Current Affairs - 2019

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$770 billion Worth of Black Money entered into India during 2005-2014: GFI

US-based think tank Global Financial Integrity (GFI) in its report titled ‘Illicit Financial Flows to and from Developing Countries: 2005-2014’, has estimated that $770 billion worth of black money entered India during 2005-2014. During the same time period, the think tank estimates the exit of $165 billion in illicit money out of the country. It translates into 3% of India’s total trade of $5500.744 billion between the time period 2005-2014. This is the first global study that has placed equal emphasis on illicit outflows and inflows. As per the report, in 2014 alone, $101 billion black money entered India while USD 23 billion exited.

The report has suggested that the governments should set up public registries of verified beneficial ownership information on all legal entities to check the menace of black money. It has also asked all the banks to check for the true beneficial owner of any account.

Global Financial Integrity (GFI)

GFI is a non-profit, Washington, DC-based research and advisory organization founded by Raymond Baker in 2006 with an aim to quantify and study the flow of illegal money. In 2008, it published its first groundbreaking economic analysis of illicit financial flows flowing out of developing world. It has estimated that $1 trillion flows out of developing and emerging economies every year due to crime, corruption and tax evasion. Apart from producing an analysis of illicit financial flows, it also advises the developing countries on effective policy solutions and promotes pragmatic transparency in the international financial system.

India’s Current Sovereign Ratings

Fitch, in its latest rating review, has affirmed India’s sovereign rating at BBB-, which is the lowest investment grade rating. Despite pressure from the government and corporate for an upgrade in the rating, Fitch has kept its sovereign rating on India unchanged. Although Fitch acknowledged India’s strong growth and recent economic reforms, it has a given a BBB- rating owing to the weak state of the government’s finances. According to the rating agency, India’s general government debt burden was 67.9% of GDP whereas the ‘BBB’ median is 40.9%. Also, Fitch has estimated a wide fiscal balance of -6.6% of GDP for FY17.

Similarly, India’s long-term foreign and local-currency issuer default ratings were also fixed at ‘BBB-’. Fitch expects a strong medium-term growth outlook as well as favourable external balances with a weak fiscal position and difficult business environment. However, it expects the business environment to gradually improve with the implementation of the government’s structural reform agenda.

Fitch has said that economy of the country is less developed on a number of structural metrics. In India, the average per capita GDP remains low at $1,714, whereas the ‘BBB’ range median is $9,701. It has also observed that the governance standards of India also remain weak as evident from the World Bank governance indicator for India at 46th percentile when compared to the ‘BBB’ median of 58th percentile.

Analysis

An official committee of the government reviewing the Fiscal Responsibility and Budget Management (FRBM) Act has recommended lowering of the government debt to 60% of GDP. The finance minister in his February 2017 budget speech has recognised that India is largely a tax non-complaint society with a low number of taxpayers. The major liabilities for the sovereign emanates largely from public sector banks with the menace of banking sector’s non-performing assets (NPAs) continuing to linger. Fitch expects the NPAs to rise to 9.7% of total loans by the end of FY17.