Hawala traders are merely lying low till the coast is clear
When Outlook approached a couple of dealers recently to send $100,000 to New Jersey, they showed immediate interest. "But it may take almost a month before the money is credited to the receiver's account in the US," admitted one trader apologetically. "We're lying low for some time, and accepting transactions only up to Rs 50 lakh." Clearly, what has changed since the Jains attained the most famous business family status is the risk and the stake. But that's all that has changed.
"The current spate of hawala disclosures about the politicians has only put the transactions into low gear. The mega-deals have been put on the backburner for the time being," says another trader. "If you consider the brisk hawala trade before an election, yes, I would say that the business has taken a beating," he concedes.
Traditionally, transfer of money to and from India gains momentum before elections. While politicians want to convert their forex reserves outside the country into Indian rupees for campaigning purposes, NRIs and residents with links abroad want to convert large parts of their hold-ings to dollars. "There is always a fear before the elections that the rupee may lose its lustre. Even Foreign Currency NonResident account withdrawals show an increase before elections," says a banker.
A key grey area which generates the hawala dollar is foreign-currency-denominated capital goods imports. Get the imports over-invoiced, buy second-hand machines against first-hand bills, and you've got a nice bundle of dollars stashed away on foreign shores. Says a leasing executive from a non-banking finance company: "I can bet that not more than 10 per cent of the capital goods imported into the country are first hand." The procedure is the reverse if you are an exporter. Then you under-invoice your goods, in connivance with your importer friend. The difference again is parked overseas.
Want to run some numbers? During the 1995-96 fiscal year, capital goods worthalmost Rs 10,000 crore are expected to be imported. Assume that 20 per cent of this value is due to over-invoicing. That's a neat Rs 2,000 crore worth of forex parked abroad to be brought into the country through the hawala route. And this may be a rock-bottom conservative estimate. The size of deposits by resident Indians in foreign accounts is estimated to be $180 billion (Rs 6,84,000 crore). An RBI study some years ago had pointed to the number of houses owned by resident Indians in some of the world's poshest addresses—Oxford Street in London, Central Park in New York, or Beverly Hills in Los Angeles. Says Sandeep Ghate, director, Securex Financial Services, "It would be impossible for most Indian industrialists to maintain their ostentatious lifestyle in the country, if they did not resort to hawala transactions."
Who are the hawala dealers? The network is huge and rears its heads in the unlikeliest places. In Bombay, while many Kutchhi kirana shops double as small-time hawala outlets, several jewellers are key collection centres for the retail hawala trade. Touts accost individuals wanting to sell foreign currency. They deal with the jewellers in the city at a minuscule commission, and the jewellers in turn take it to the big dealers for the hawala operations. More figures? On February 7 at 11 am, while the RBI official dollar rate was poised at Rs 38.50, the tout's rate for the dollar was Rs 40, the jeweller's rate for the tout was Rs 41 and the hawala rate for the dealer stood at Rs 42.
"It's like a parallel bank, where even if there are no immediate orders, transactions take place," says a city-based jew-eller. Other small-time operators include some RBI-approved forex dealers and even airline employees. "Airlines staff launder currency for you only if you know them well or if you are recommended by someone who has done some previous deals through them," says a lawyer who has been a regular currency swapper.
Clearly, hawala is here to stay. Bankers claim that even if the rupee is made totally convertible, hawala transactions will continue, thanks to the narcotics trade. And, says a US-trained MBA who also deals in hawala, "As long as the tax rates are high in the country, unaccounted money will remain in the system which will always encourage hawala transactions."