India’s exports figures in recent past continue to surprise everyone. It has gone quite unnoticed the post Baba Ramdev & Anna Hazare led Anti-corruption movement has witnessed a robust pace with an unnatural and suspicious growth in the Indian economy’s export graphs. The recent exports figures are encouraging for the sector, and the growth could be part of some larger developments in the world trade. But at the same time it is equally, if not more, plausible that black money has something to do with the recent export figures. To be or not to be - but the questions are in the air – Are the export figures real? Is black money behind the current flamboyant performance in exports?
.After jumping by a whopping 81.8 percent year over year (YOY) to US $29.3 billion in July, overseas shipments grew again at a robust pace of 44.2 percent YOY in August, reaching US $24.3 billion. During the April-August period, exports have reached a level of US $134.5 billion, registering a growth rate of 54.2 percent YOY. Interestingly, the skepticism is backed by recent IMF monthly trade statistics which indicate that other countries' import from India don't match with the Indian government's numbers on exports.
These numbers are spectacular but puzzling. How could Indian exports grow at a consistently scorching pace over a long time at this time of global economic uncertainty, particularly when two of its biggest export markets – the US and Europe – are battling fears of recession? The question is doing rounds probably everywhere now.
Black money is pushing Indian exports – such a claim is more difficult than anything else to prove. But I feel the argument cannot totally be ignored, particularly in the post Baba Ramdev and Anna Hazare scenario and after the recent nationwide hullabaloo over black money, forcing the government to put renewed efforts to tighten the noose on money launderers.
Is there a bigger cat in the bag? In the last few days a few exporters viewed that their (India’s) growth is not really so high. It is black money, as claimed by some industry pundits, that is playing a hidden role in the recent growth in India's export earnings. In a modus operandi of over-invoicing their exports, some people who have stashed money abroad bringing the wealth back to the country in the name of exports. These includes Indian Multinational conglomerates, high-placed politicians, past and present crickets, filmstars who have floated fictitious companies and trust to launder their black or unaccounted income.
While bringing back the black money, funding over-invoiced export earnings from illegal wealth held abroad is likely to be a preferred way, which, unlike the Hawala route, helps to make the black money white and even tax exemptions can be enjoyed. And if such exports could be shown from a SEZ or an EOU, that's icing on the cake with more benefits on avail.
Recently, the government has entered into the Tax Information Exchange Agreements with a number of countries and jurisdictions that are known as tax havens for black money. Also renegotiation of Double Taxation Avoidance Agreements (DTAA) with some other nations, including Switzerland (expected by September-October) is also being pursued. However, the Congress government is yet to close or cap the Mauritius route as well as enter into bilateral treaty with those countries where the black money is suspected to be stashed in cash and assets.
Mauritius Route:
In 1992 Foreign Institutional Investors (FIIs) were allowed into India. The same year, Mauritius passed the Offshore Business Activities Act which allowed foreign companies to register in the island nation for investing abroad. The benefits? Total exemption from capital- gains tax, quick incorporation (a company is formed in Mauritius within two weeks), total business secrecy and a completely convertible currency.
Indians could be using Mauritius as a route for bringing back black money into India, while taking advantage of low and friendly tax regime in the island nation located in the southwest Indian ocean.
For Mauritius’s foreign (Indian) investors willing to invest in India, it made sense to set up a subsidiary in Mauritius and route their investments through that country. By doing so, they would avoid paying capital-gains tax all together -- India won't tax because the company is based in Mauritius and Mauritius had anyway exempted investors from capital-gains tax. In addition, Mauritius also has low rates of dividend and income taxes. Of the 525 FIIS operating in India, 136 are operating through Mauritius. The Double Taxation Avoidance Treaty ( DTAT) between Mauritius & India allowed investors to invest in India and bypass its high taxes and lengthy regulations.
A six storey building in the heart of Mauritian capital Port Louis serves as a bogus address for tax evaders to park black money. It is the same address that is also being investigated by the CBI. There are other routes such as Malaysia, Dubai, South African countries, which are yet not capped by Government of India.
However, policy makers say that high growth in exports is the result of India's market diversification policy. The government denied that there was anything wrong with the export data, although earlier in March it had admitted that the merchandise import data for February 2011 were underestimated because of a technical problem in a government e-commerce portal.
Eggs are put in many baskets and the economy is reaping benefits, claims government of India. But still experts are skeptical about the fact that our exporters are moving away from the traditional export markets so fast!
Keeping the above developments in mind it seems quite plausible that Indians who secreted away their black money in these tax havens would try everything to shift the wealth to some safer place or bring it back home.
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