Is black money being repatriated to India or not? The doubts are growing larger by the day.
An Economic Times report pointed out the amazing surge in India’s exports to the Bahamas — a well-known tax haven — is fuelling intense suspicion that a large proportion of these transactions are nothing more than fake transactions aimed at bringing back money stashed in secret accounts at overseas banks.
The report said that in between 2008-09 and 2010-11, exports to the Bahamas jumped to $2.2 billion from $2.2 million. Yet, India’s share in Bahamas’ imports, which totalled $2.8 billion in 2010, is a relatively minor 7.5 percent.
Clearly, something doesn’t add up here. If anything, it only strengthens the suspicion of what a recent Kotak Securities report noted (Firstpost was among the first to report on this): export data from major engineering companies (including automobiles and metals) did not match up with the steep increase in official exports data, indicating some financial chicanery was going on. “In fact, the gap is quite substantial,” the report said.
The report suggested, but did not conclude, that some black money might have been repatriated back to the country via ‘over-invoiced’ exports (done by billing high fake amounts for overseas transactions with fake buyers or shell companies) given that international scrutiny is increasing over unaccounted funds in Swiss bank accounts and other financial centres.
Indeed, quite a few voices have raised doubts about how India could continue achieving blistering rates of growth in exports (almost more than 50 percent each month) when the US and Europe, two top export destinations, are clearly in major financial trouble.
While the Bahamas brouhaha may finally not amount to much, it's about time the government initiates an investigation on export figures given the increasing doubts about them. Reuters
The issue of black money and what the government is doing about it has stoked considerable debate in recent times.
Under pressure from civil rights activists like Anna Hazare, the government has been nudged into action on bringing back illegal overseas funds, but its record on the matter has been patchy.
An India Today report quoted Pranab Mukherjee as saying that tax authorities had obtained 9,900 leads from foreign banks about suspicious overseas transactions involving Indian citizens, as well as examining data on another 30,700 domestic transactions for suspected tax evasion and money laundering.
Mukherjee also said the income tax department had unearthed black money totalling Rs 18,750 crore ($3.8 billion) in the past two years.
But that’s a piddly amount compared to what has been lost to illicit funds abroad. Washington-based Global Financial Integrity released a report last year that estimated about $213 billion ($462 billion at today’s prices) was illegally transferred overseas between 1948 and 2008. In the past five years, in particular, India lost assets at a rate of $19 billion a year, far more than it lost at the beginning of the research period.
Raymond Baker, director of Global Financial Integrity, said that India needed to focus on curbing outflows by expanding India’s tax base and improving tax collections. Transfer pricing deals, which deals with the pricing of goods between a company and its subsidiaries, also need to be scrutinised more thoroughly because it is a widely utilised tax avoidance technique in international business.
“It doesn’t do much good to try to bring back the black money when the channel still exists for the ongoing outflow of the black money. Let’s get the priorities right,” Baker told Firstpost.
Indeed, that’s still something the government hasn’t done yet. While the Bahamas brouhaha may finally not amount to much, it’s about time the government initiates an investigation on export figures given the increasing doubts about them. At least then, it will be seen as taking serious efforts to tackle this economic scourge.
Meanwhile, Indian black money continues to be transferred freely around the world. A DNA report noted that in the past few weeks, several Indians had been transferring money from Switzerland to other countries that don’t have any bilateral agreements for sharing information with India.
Huge chunks of money were reported to have been transferred to Macau, the Isle of Man, New Jersey Island, Cayman Islands and Seychelles – all tax havens.
Exports may or may not be just the tip of the black money iceberg. But the government needs to make certain that it’s not letting money launderers get away with illicit funds in the guise of ‘booming’ exports.