30 September, 2020

Subtracted By $15.7 Billion?

A price- rigging game in India’s trade with the US may have led to a huge flight of capital— severely hurting the economy

Subtracted By $15.7 Billion?
outlookindia.com
-0001-11-30T00:00:00+05:53

A simple modus operandi— over-invoicing of imports and under-invoicing of exports— could have led to the flight of a mind- boggling $15.7 billion (Rs 57,000 crore) from India to the United States between 1993 and 1995. So concludes a study by three US- based economists: John S. Zdanowicz, William W. Welch and Simon J. Pak of the Florida International University, Miami.

This is the worst case scenario. The best case scenario, according to the study, isn’t too good either: that implies a flight of $1.4 billion (Rs 5,100 crore). The researchers compared the average prices of products the US trades with other countries in the world  with the prices of the same products when it trades them with India to find enormous deviations (see tables). Over- invoiced imports into India in 1994 and 1995 could, according to the study, have been to the extent of $1.5 billion, and under- invoiced exports, as much as $9.9 billion.

Suppose one accepts the $15.7 billion figure for the flight of capital, then the implications are stark, and horrendous. If this outflow had...

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