"Illicit financial flows means the money that actually is black money, and it is then sent over to tax havens. And in India, a lot of it is happening through trade-based money laundering, over-invoicing or under-invoicing, and a variety of other ways... and then money is leaving the country simply through hawala channels," Sinha said at a UN function.
The Minister further said illicit capital outflows from developing nations have been estimated at USD 300-600 billion.
"These illicit financial flows are very very substantial. In India, they are quite substantial," Sinha said.
The government has taken a host of steps, including enactment of the black money law, to deal with unaccounted overseas assets.
Through transfer pricing mechanism, he said, multinationals move profits to low tax countries and tax havens, thus reducing their tax liability.
"Now, there is a lot of capital that is going out of the developing world and into the developed world because of transfer pricing," Sinha added.
Illicit financial flows, he said, are estimated to be much higher than those going out by transfer pricing and capital gains.
"So, in one way, if you look at what developed countries are putting into the developing world, it is more than offset by what is leaving the developing world... It is an inequitable situation, and this is what is happening with global capital flows," Sinha added.
Referring to the current financial turmoil triggered by yuan devaluation, he said India has a chance to shine.
"As the world faces more turbulence and slower demand, India has a chance to shine. India has an opportunity to be a very attractive investment destination and be able to attract funds both from domestic and international investors," Sinha added.