Trade misinvoicing and capital flight: A study on magnitude and drives in India

The paper estimates the extent of trade misinvoicing in India by using costs of insurance and freight/free on board methodology; it also examines the impact of identified key macroeconomic variables on capital flight through trade misinvoicing from India by using the ordinary least squares technique. The study observes that during the period 1991-2018 the magnitude of illicit financial inflow had always been more than illicit financial outflow and this gap is widening continuously. The results reveal that current account deficit, burden of external debt, trade openness, and high corruption index increase the incentives for illegal capital drain out of the country, whereas high interest rate, high customs and other duties reduce the illicit outflow through export under invoicing and import over invoicing.