Exporters mispricing goods to stash away dollars overseas

NEW DELHI: The country's intelligence agencies have sounded an alarm over traders massively mispricing goods to stash away dollars overseas to benefit from the depreciating rupee.


This could be worsening the current account deficit by depressing inflows of dollars. "There is a fresh concern on mispricing of goods to park funds abroad," said a government official, adding the menace had stopped in the last couple of years because of the crackdown on black money.

Customs authorities, directorate of revenue intelligence and enforcement directorate are keeping a close watch.

"There are cases of exporters under invoicing to park dollars overseas while importers are over-invoicing goods to send dollars out," said another official with an agency looking into the issue.

Data does suggest something amiss as India's exports growth has suddenly turned negative in the new financial year, coinciding with the massive slide in the rupee against the dollar.

India's exports dropped 1.4% in the April-June quarter while its non-oil imports rose 5.8% in the same period, yielding a trade deficit of $ 50.2 billion, which is 19 % more than last year. Exports were down 4.6% in June. The rupee has slid nearly 10% against the dollar over this period, and the decline was arrested only after the RBI applied massive liquidity squeeze that risks undermining the economic recovery.

Globally, trade mispricing is the most commonly used method of moving illicit flows, as it is difficult to verify each transaction and its value.

A study by enforcement directorate for the Asia Pacific Group last year had highlighted how international trade denominated in terms of international currencies increases vulnerabilities of exchange rate market. It showed how letters of credit were frequently amended or extended for carrying out mispricing.

The usual practice is that exporters would declare a lower export value than the worth of goods shipped. The party receiving the goods will park the balance amount in a foreign bank for a commission. Similarly, importers would overprice the goods purchased and the extra amount remitted would be parked in a foreign bank.

Global Financial Integrity had earlier highlighted that was India among the top ten nations in terms of illicit outflows with $123 billion in outflows in the ten years to 2010.

The concern over such a practice is not restricted just to India. Apprehensive of mispricing China, in May, increased scrutiny on exporters over trade payments after its currency depreciated against dollar.

Trade, however, strongly refutes such a possibility.

"Most of the shipments are under some export neutralisation or promotional scheme and subject to customs scrutiny over valuation thus ruling out the possibility of overinvoicing or underinvoicing," said M Rafeeque Ahmed, President, FIEO.

Trade-based mispricing has become a predicate offence under the Prevention of Money Laundering Act and attracts prosecution, up to 7 years imprisonment and fine.