ISSN (Print) - 0012-9976 | ISSN (Online) - 2349-8846

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Measuring Illegal Outflows from the Indian Economy

Some Methodological Issues

The paper "An Empirical Study on the Transfer of Black Money from India: 1948-2008" (EPW, 9 April 2011) by Dev Kar suffers from definitional and methodological flaws. As a result, it is not very clear what is being captured in the estimate - illicit financial flows, gross capital flight or net capital flight.

1 Introduction

“Black money” held abroad has attracted much attention recently. Academic circles have largely ignored the issue perhaps believing that it is intractable even if relevant for trade and capital flows. This is both short-sighted and analytically incorrect, since it results in errors in the analysis of the external sector and leads to policy failure. Kumar (1999) pointed to the impact of the black economy on all the macro variables of the economy, including those relevant to trade – exports, imports, and the current and capital accounts of the nation. It was pointed out that getting correct results and policy conclusions requires that the black economy and the flows associated with it are taken into account.

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