It has been a routine and traditional business practice in India, to illegally remit money abroad and evade taxes, despite very stringent provisions of penalty and prosecution under FEMA and the Income Tax Act. This was popularly done by corporates by either over-invoicing their imports or by under-invoicing their exports. The net result was tax evasion and money parked abroad in secret accounts in tax havens like Switzerland, Bahamas, BVI, Cayman Islands, Channel Islands etc. The politicians and the babus too at times remitted their ill gotten gains of corruption to these tax havens, to be out of the clutches of the Indian law. But then money stashed abroad lies idle and is often needed by the corporates back home. It was then given a garb of legitimacy and was brought back to India in the form of FDI, FPI or foreign loans, to the very corporate which had sent it abroad through hawala modes. This is what round tripping of funds is all about. The now banned P Notes have been infamous for routing back these funds into the Indian stock markets.
It has been a known fact that hundreds of billions of dollars of Indian tax evaded money has been secretly stashed in tax havens abroad. It is because of the government’s war on this black money, primarily in response to data leaks, whether in the case of HSBC Geneva or the Panama papers etc. that the practice of parking funds into hidden accounts abroad has been significantly curtailed. The government thus tomtoms the fact that the Indian money parked into Swiss banks has gone down substantially as proof of the success of its war against this black money. Thus when the Swiss National Bank (SNB) announced that Indians still have Rs.3500 crores deposited with Swiss banks, the Opposition immediately alleged failure of the government’s initiatives in this regard. The government soon clarified that the Indian money parked in Switzerland is all legal now and to buttress its claim of success in the war against this scourge said that deposits of Indians in Swiss accounts had fallen by 80% since the NDA came to power and by 35% as compared to last year.
The government maybe right, about the Swiss deposits but the fact is that lots of money of Indians is still secretly stashed abroad and it is being brought into India by way of round tripping through tax havens. The FDI into India from the Cayman Islands, a well-known tax haven has shot up by 1600% and exceeds even that from the likes of Germany a most respected nation. The government needs to carefully scrutinize these inflows because money coming in from tax havens by its very nature is suspect and could be illegal. The fact remains is that while illegal outflows from India have been curtailed, those coming into India are still strong and growing.