Goods ‘Made in China’ are pushing the black money economy in India, according to a study conducted by the Directorate of Revenue Intelligence (DRI). A preliminary study report prepared by the DRI focusing on the mismatch in trade between India and China has revealed that the difference between the declared value of the economically-priced Chinese goods and their actual price is being paid through informal channels.
The DRI top brass, which shared the report with the Supreme Court (SC)-appointed Special Investigation Team (SIT) on black money, pointed out that this difference between the actual price and declared price runs into several lakh crores of rupees and is being pushed into the country through hawala and other illegal routes.
For instance, if a China-made product’s actual rate is Rs100 and it is being sold at a maximum retail price of Rs20, the deficit Rs80 is being pushed to the Indian distributor and others in the chain of supply through an illegal route. On the flip side, due to the under-invoicing of goods, the duty levied gets calculated against Rs20, causing grave loss to the exchequer.
Mentioning the DRI study in its third status report submitted to the SC, the SIT headed by retired SC judges MB Shah and Arijit Pasayat said: “The Director-General, DRI in a letter dated April 24, 2015 sent the preliminary study report on the trade mismatch between India and China. His report establishes a pattern of undervaluation to avoid import duties in India and that differentials between the actual price and the declared value are being sent through informal channels.”
DRI officials believe such “mispricing” or “under-invoicing” is a major source of black money entering into India. DRI has goods from other countries on its radar and will be submitting similar studies on trade mismatch between India and other countries to the SIT in the coming months.
Interestingly, warning signs about the flow of huge volumes of illicit money from India were given in successive reports generated by the globally-acclaimed Global Financial Integrity, a US-based research and advisory group.
The GFI’s December 2013 report disclosed that India ranked fifth among 142 countries on the scale of illicit money flow. In the year 2012, this figure was pegged at Rs 5,93,557 crores. Between 2002 and 2012, the total illicit financial flow was $4,39,587 million, which comes close to Rs28 lakh crore.
The SIT has revealed another equally disturbing development in its report shared with the SC. The Central Board of Direct Taxes has informed the SIT that in 2013-14, it had stumbled upon “suspicious transactions” entered between individuals and companies as part of which it detected unaccounted income worth Rs7,078 crore. In the successive year, 2014-February 2015, the agency has identified Rs4,456 crore worth of illegal money.