Black money: Swiss gold exports to India near Rs 1-trillion in 2014-Financial Express
Amid concerns of bullion trade being used for routing of black money, Switzerland’s gold exports to India have risen further and is fast approaching Rs one-trillion mark for the entire 2014.
The Swiss gold exports to India stood at over 2.8 billion Swiss francs (over Rs 18,000 crore) in October, up from about 2.2 billion Swiss francs in the previous month, shows the latest data from the Swiss Customs Administration.
This has taken the total Swiss gold exports to India since January this year to 14.2 billion Swiss francs (nearly Rs 93,000 crore), as per the data compiled by Switzerland’s cross-border trade monitoring agency.
This surge in gold shipments has made India the largest destination for the yellow metal exports from Switzerland.
There are concerns that gold trade could be a possible route for laundering of unaccounted wealth, suspected to be stashed by Indians in Swiss banks, although there has been no official word from either countries so far in this regard.
The Supreme Court-constituted SIT, however, said in its latest report on black money that a dedicated institutional mechanism needs to be put in place to examine “mismatch between export/import data with corresponding import/export data of other countries on at least a quarterly, if not a monthly basis.”
The SIT said that this suggestion has been made by the Financial Action Task Force (FATF), while citing the Data Analysis and Research for
Trade Transparency System adopted by US, to control over/under invoicing to some extent.
“It is established since years that over invoicing or under invoicing is known method for stashing black money outside the country. Main question is how to control this malady.
“If there is proper vigilance to a large extent by the Customs Department, misinvoicing can be controlled because, nowâdays, price of various goods/machineries is known in the international markets.
“For this, data is also published and is available on computer at any point of time. Hence, it was suggested that in a Bill of Export/shipping Bills, an entry should be included, namely, what is the international market price of the goods/machineries which were sought to be exported,” the SIT said.
The government has informed the SIT that this suggestion is already under consideration and is likely to be implemented within a short time.
As per the data from the Indian government, gold imports jumped 280 per cent to USD 4.17 billion in October. In September as well, gold imports increased manifold to USD 3.75 billion. This means Switzerland alone accounted for 60-70 per cent of the gold that came to India during these months.
Undermounting global pressure, Swiss government started publishing trade data monthly from 2014 and included information on trade partners.
Data on imports and exports of gold, silver and coins was available on quarterly frequency as a separate product up to 2013 but data by trade partner was not available.
While industry watchers attribute the surge during October and September partly to increased demand for yellow metal during Diwali and other festivals in India, the sudden spike is also being seen suspiciously in the backdrop of gold being used for ‘layering’ purposes to move funds from Swiss banks amid growing scrutiny for suspected black money.
According to banking industry sources, banks operating in Switzerland, including those headquartered in the Alpine nation and the Swiss units of other European banks, have turned wary about dealing with their Indian clients in the wake of a growing scrutiny of such accounts.
A number of Swiss banks, including three with significant global presence, have begun telling their Indian clients to sign undertakings that are aimed at ‘derisking’ the banking institutions from potential risks arising out of regulatory actions against the bank customers by foreign governments.
Some banks are also telling their clients to close their accounts if they are not ready to take such risks, or if they have apprehensions about such accounts not being compliant to regulatory requirements in their home countries.
Through these ‘derisking’ undertakings, the customer agrees to take responsibility for any possible regulatory or administrative compliance with international norms.
A new strategy of ‘layering’ through gold and diamond trade came to light earlier this year at Swiss banks to thwart any attempt for identification of real beneficiary owners of funds entrusted with them, government and banking sources have said.
There is a growing suspicion that a portion of gold and diamond trade is being used to route funds from Swiss banks to India and other destinations.
‘Layering’ is a key stage in money laundering and involves moving illicit funds around financial system through a complex series of deals to complicate the paper trail.
This layering typically takes place between the first stage — placement of black money in the financial system either in cash vaults, or through a series of cash or sham financial transactions — and before the final ‘integration’ stage when money is put back into the financial system through various transactions for the benefit of its final recipient.
There has been a huge political uproar over Indian black money allegedly stashed in Swiss banks and the new government has said it is committed to tackling this menace.
As per Swiss National Bank’s latest data, the total money held by Indians in Swiss banks stood at over Rs 14,000 crore as on December 2013, up by nearly 42 per cent from a year ago.
‘Hot Money’ from FIIs hits Rs 10-lakh crore mark
Putting Indian markets on fire, the foreign investors have pumped in over Rs one-lakh crore of so-called ‘hot money’ into stocks during 2014 — taking their cumulative net investments here beyond Rs 10 lakh crore.
As an eventful year draws to a close, the Foreign Institutional Investors (FIIs) have made a net investment of nearly Rs 1.05 lakh crore so far in 2014 and a further Rs 1.6 lakh crore into debt markets — resulting into a total of over Rs 2.6 lakh crore (USD 43.4 billion).
This has taken their cumulative net investments into the Indian equity markets, since being allowed over two decades ago in November 1992, at close to Rs 8 lakh crore.
The cumulative figure for debt securities has also grown to Rs 2.6 lakh crore — taking the total for overall Indian markets to Rs 10.54 lakh crore (over USD 214 billion).
These investors, which also got re-christened as FPIs, or Foreign Portfolio Investors, in 2014 under a new regulatory regime that promises to make it easier for them to invest in India, have emerged as a key driver in the ongoing record rally in the markets here and are likely to remain so.
This huge investment flow, which belies its commonly used nomenclature of ‘hot money’ as such funds can be withdrawn anytime, has come at a time when foreign companies have been mostly reluctant on their FDIs (Foreign Direct Investments) that carry a common perception of being longer-term in nature.
The experts say that the final tally for 2014, as over two weeks of trading is still left this year, could be much better and there is also a chance of annual FII inflows hitting a new record high level.
The FIIs had made a net infusion of Rs 1.13 lakh crore into equity markets during 2013, while a record high amount of Rs 1.33 lakh crore was pumped in the year 2010.
This would be the fourth time in history that net FII inflows for a year would cross Rs 1 lakh crore mark and analysts are optimistic about the next year as well.
As per the market data, these investors have made gross purchases of close to Rs 10 lakh crore in the stock market and of about Rs 4 lakh crore in the debt market this year. On the other hand, their gross sales stood below Rs 9 lakh crore in equity and at little over Rs two lakh crore in debt market.
On a cumulative basis, these overseas investors have made gross purchases of shares worth over Rs 88 lakh crore and sales of close to Rs 78 lakh crore so far in Indian markets.
The experts believe that the inflows will remain equally strong or even better in next year, after recording their third consecutive year of net inflows during 2014. The foreign investors had pulled out a net amount of Rs 2,714 crore (USD 358 million) from the stock market in 2011.
“I am quite sure that the foreign flows would remain equally strong in the next calendar year as well. Actually, if the economic fundamentals show some strong signs of recovery, the foreign flows would only become stronger,” Ladderup Wealth Management’s Managing Director Raghvendra Nath said.
Echoing similar views, LIC Nomura Mutual Fund’s Senior Fund Manager (Debt) Killol Pandya said: “As of now, we appear to be set for an economic revival after a prolonged period of economic woes – stemming mainly from inflation and low growth.”
“… we appear to be recovering in terms of economic growth and our interest rate cycle too seems to have peaked. In this scenario, it is expected that our equity and bond markets ought to perform well in the coming few quarters. 2015 should be a better year for FPIs vis a vis the previous few years,” he added.
While inflows into bonds have been significantly higher than the equities in 2014, the overseas investors had kept away from the debt market in 2013 and had pulled out a net sum of around Rs 51,000 crore (USD 8 billion) in that segment due to weakness in the Indian currency.
Interestingly, most of the inflows this year into Indian debt market has gone into government securities.
According to market analysts, overseas investors remained bullish on the Indian equities and debt markets throughout 2014, barring a few months. The sentiments had been bullish even during the first half of the year, mainly on hopes that a strong reform-oriented government will come to power at the Centre.
These positive sentiments continued after a new government took over in May and got a further boost from the reform measures announced subsequently.
While FPIs had begun the year on a positive note too, the momentum picked up in May and pumped in over Rs 41,000 crore in just three months till July. However, the pace of investments into equities somewhat turned slower in August and September. For some time, the overseas investors also turned net sellers of equities.
FPIs, once again flocked towards Indian stocks and bought bagful of stocks in November on positive global cues coupled with hopes from the government’s reforms agenda. Since then, the inflows have remained strong.
“After the change in government at the Centre in May, there has been a significant change in sentiment and outlook towards India. Most foreign investors are finding India to be a far better choice that can generate returns in both short and long term,” Nath said.
Amongs various emerging market economies, India is being viewed as the strongest candidate for portfolio investments, he added.
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