Reliance's export trail in Bahamas may not yield much

The fake exports trail is getting curiouser and curiouser.

On 9 December, Commerce Secretary Rahul Khullar announced a $9.4 billion correction (“mistakes take place”) in the export data for April-October 2011 due to a computer crash and data entry errors. Among other things, he said that engineering exports had been overestimated by $15 billion and petroleum and gems and jewellery exports were understated by $12 billion.

But the finance ministry is not willing to overlook “mistakes” so easily. The Economic Times reported on 12 December that the finance ministry has asked not one, but three of its investigation arms, to check on petroleum product exports to tax haven destinations like the Bahamas and Cyprus. The three agencies are the Central Board of Direct Taxes, the Directorate of Revenue Intelligence and the Enforcement Directorate.

[caption id=“attachment_155210” align=“alignleft” width=“380” caption=“Chairman and Managing Director of Reliance Industries Mukesh Ambani. Reuters”] [/caption]

Quoting sources, the newspaper says: “The revenue department has asked the agencies to verify the transactions since it has come to light that in some cases the export figures do not match the inward import figures of the two tax havens.”

Firstpost had reported in October that exports to the Bahamas had shot up 1,000-fold from $2.2 million in 2008-09 to $2.2 billion two years later - the jump being explained later as a surge in exports by Reliance Industries and one public sector company.

The petro-goods export miracle was indirectly confirmed by Khullar’s press conference on Friday while announcing the export figures for November. He said between them petroleum products and gems and jewellery exports were understated by $12 billion.

But if the finance ministry now wants to check if the “miracle” was for real, it is unlikely to discover the truth - for the trail may well have gone cold.

In yet another report on the subject, The Economic Times on Tuesday (13 December) seemed to suggest that the finance ministry’s suspicions may be correct - that the export data from India to the Bahamas may not match the import data at the Bahamas end.

The Bahamas, it seems, were not the final destination for these exports, especially Reliance’s. Rather, it is only a storage depot, from where petro-goods are shipped to markets in North or South America.

This is what the newspaper now says , quoting industry officials: “Since only a small fraction of this shipment is used locally in the Caribbean region, and often the fuel is directly loaded to smaller ships at Bahamas for shipment to the North and South American markets, the export numbers may not match the import data of Bahamas.”

Two things are thus clear.

One, it is Reliance that is behind the big export surge to the Bahamas, a Caribbean tax haven. And two, the Bahamas will not be of any help in telling the taxman whether the exports were for real of not - since the islands were only a transit point.

Pranab Mukherjee can thus call of his sleuths from taking a junket to the Bahamas. But he still needs to probe the larger question of overinvoicing of exports to bring back Indian black money from the tax havens.

As Firstpost reported two months ago, a Kotak Securities report had highlighted the huge discrepancy between official export figures and the figures put out by the companies on the BSE 500 index. Firstpost was the first to highlight the implications of the Kotak report.

The authors of the report - Sanjeev Prasad, Sunita Baldawa and Amit Kumar - concluded that there was enough ground for an investigation: “Our study of exports data of major engineering companies (including automobiles and metals) shows that the increase in their exports does not reconcile with the steep increase in official exports data. In fact, the gap is quite substantial.”

The search, though, must begin here. Not the Bahamas.