Devesh Kapur & Arvind Subramanian piece on fighting imported corruption was placed in the Business Standard.
From the Article
Ending the Mauritius tax treaty is the key to curbing globalisation-enabled corruption in India.
The anger that we feel against today’s “elite” bribe-takers in India comes with a major question: where does that money go? How are such massive amounts of ill-gotten wealth laundered without being easily traced? When Sukh Ram took his cut, he could still put it in suitcases, but when Madhu Koda raked it in, the sheer volume meant he had to be much more creative. Benami land transactions and real estate purchases are possible, but large and frequent purchases are not easy to hide. Discreet foreign jurisdictions have, therefore, become the preferred destination for bad money. And here India’s global integration – and the ease of moving money into and out of India, both through current and capital accounts – has facilitated, albeit not caused, skyrocketing corruption in India.
Consider the three dimensions of what might be called globalisation-enabled corruption: the analytics, the mechanisms and possible policy solutions. MACROECONOMIC ANALYTICS Two distinct outcomes are associated with globalisation-enabled corruption. First, it could simply lead to a flight of capital overseas, as happened in Latin America during its period of instability and continues to happen in corrupt autocracies around the world. But this cannot be the complete story of globalisation-enabled corruption in India today. India today, unlike these places, is a booming economy, offering high rates of return for clean and illicit investments alike. Corrupt Indians must be looking to earn high rupee returns on corrupt income, and not just looking for safe havens abroad offering anaemic dollar returns. In other words, at least some of what goes out must be intended to come in.
In macroeconomic terms, the old story was that of capital flight reducing domestic savings and investment. The newer version, ironically, might entail fewer macroeconomic costs because savings are not totally lost to the Indian economy. The greater cost is distributional: not just does public wealth become concentrated in a few private hands, illicit wealth is provided with implicit subsidies in the form of taxes avoided, secrecy conferred and preferences accorded. This is because this money comes back as the much sought-after “foreign” investment. This is not unique to India. Estimates are that between a quarter and one-third of foreign direct investment (FDI) into China is “roundtripping”.