BOMBAY, Oct 5 (UNI): Deposits held by Indians in Swiss banks have been increasing by 30 to 35 per cent annually during the last four years, according to a report of the Central Bank of India’s economic intelligence division.
Estimating the increase of deposits in the period since the International Monetary Fund put out the quantum of such deposits at about Rs 1300 corer in 198384, the report points out that there could be no early end to such a flow of funds.
While it would be difficult to get the total estimate of funds held by Indians in all countries considered as tax havens, the report said the important individual reasons for such deposits are the “Illegal nature of the earnings” being made by these citizens.
Referring to the M.G. Kaul committee’s report submitted over 17 years ago, the Central Bank of India’s study said that parties involved in import and or export were also being utilized to play an important role in the illegal movement of funds from India.
Such flow of funds from India did not constitute a problem from the concerned individual’s standpoint “since he is minimizing expected losses to enhance his welfare,” the report said and felt that such continued outflow of funds created shortage of liquidity in the country’s economic system thereby compelling it to push up interest rates on credit extended.
Under a system of floating exchange rates capital outflow would also tend to depreciate the domestic currency,” the report has warned, adding that such capital flights had serious implications on the country’s economic policies.
If such capital flights had to be curbed, the Government should formulate policies so as to avoid discrimination against resident holders of domestic assets, the report said and to mobilize and retain domestic savings the “savers must be remunerated at rates that are more in line with those available internationally.”
The Government should adopt policies aimed at keeping the exchange rates at realistic levels. The report urged the Government to resort to policies that would avoid financial repression and also develop an efficient system of domestic financial intermediation.
Illegal flow of private funds has been one of the most important factors responsible for forcing developing countries like Brazil, Argentina, Venezuela, Mexico and Peru to face debt crisis the report said and lamented at the flight of capital from India haying been greatly overshadowed by the plight of those countries.
Article extracted from this publication >> October 21, 1988
