News Update

India, China hold fresh dialogue for complete disengagement on Western borders: MEAThakur says India is prepared for 2036 OlympicsCBDT substitutes Form in ITR-5EV Revolution: Lessons for India to learn from US and China!London court green-signals auction of luxury apartment of fugitive Nirav ModiGovt consults RBI; finalises borrowing plan for first half of FY 2024-25Gadkari says Farmers’ protest is politically-motivatedVP calls upon women entrepreneurs to be 'Vocal for Local'America offers USD 10 mn bounty for information on ‘Blackcat’ hackers after UnitedHealth gets hitI-T- The order of the ITSC can only be reopened in cases of fraud or misrepresentation: HC8 persons including Hezbollah militants killed in Israeli strike on LebanonI-T - Income so surrendered on account of investment in excess stock during course of survey cannot be brought to tax under deeming provisions of section 69B: ITATMacron pillories EU-South Africa trade deal; calls it ‘really bad’ in BrazilI-T-Power of revision need not be exercised where facts do not reveal any lack of enquiry by AO into relevant issue & when twin requirements of order being erroneous as well as prejudicial to Revenue's interests, are not satisfied: ITATThailand’s Lower House okays Bill to legitimise same-sex marriageI-T -Penalty u/s 271(1)(c) cannot be imposed where an assessee claims deduction u/s 80P while being ineligible therefor, but being under the bona fide impression of being eligible for such benefit : ITATYellen warns China against clean energy dumpingCus - Enhancement of declared value of imported goods is not tenable, where Department adduces no material to show how the enhanced value was computed & where no cogent rationale is made out for rejecting declared value: CESTATMilky Way’s central black hole - Twisted magnetic field observedCus - Assessee has not proved beyond reasonable doubt that goods in question imported under air way bills/bills of entry were in fact filed by him and hence the only natural corollary available to Revenue is confiscation of same: CESTATSmall investors help Trump Media’s valuation skyrocket to USD 13 billionST - When the facts are in the knowledge of department subsequent SCN alleging suppression cannot be issued and entire demand was found beyond normal period of limitation: CESTATFM Nirmala Sitharaman declines to contest LS elections as she has no fundsST - Tripura State Rifles not required to pay Service Tax under heading of Security Services, as it is is not engaged in business of providing security services: CESTATJustice Ritu Raj Awasthi joins as Judicial member of LokpalCX - Clandestine removal alleged based on consumption of raw inputs and heightened electricity usage - Tax demands based on third party statements but without permitting cross examination of deponents; case remanded to allow this exercise: CESTAT
 
RBI once again caught napping; After gold, SEZ trading units latch on to platinum exports for circular trading!

By TIOL News Service

NEW DELHI, JAN 3 : ON SEZ front, a flurry of activities can be seen in the corridors of Commerce Ministry. Even Montek's cautioning viewpoint has not had any slowdown effect on the flamboyant spirit of SEZ juggernauts. Work for getting Cabinet approval is on at a feverish pitch. But how SEZ facilities can be abused to distort the country's exports statistsics was evidently seen, a few months back, in the case of circular trading of gold. When TIOL analysed this issue in great details some time in July last year, the RBI had finally come out with the Circular No 2 (RBI/2004-05/30 ) to put a full stop to such a practice.

Though the Commerce Ministry mandarins and RBI topbrass had thought that with this circular such a practice would come to an end and, indeed, it did end in the case of gold. But those who have developed an art of making a killing out of differential interest rate between the international market and India cannot be stopped so easily.

It is learnt that they have now switched over to other precious metals like platinum and palladium and the same circular trading continues between India and Dubai. Since our policy makers underestimated the market wisdom of such exporters and did not mention trading in other precious metals in that circular a large number of gold exporters saw an escape route in that circular and coolly shifted to exports of platinum group of metals.

It all started with a handful exporters making a beginning in this trade. Soon, copycats joined them. And now, Development Commissioner is flooded with applications to amend the LOC to include these precious metals in the list of commodities in which these trading units intend to transact.

Now, the question is in what way such circular trading harms the interest of Indian economy? First, such import and export with a little value-addition doesn't do any good to the country except artificially jacking up the exports figures and creating a false impression about rising exports graph. It generates no employment in the country and distorts our statistics which is often used as a policy tool for taking vital policy decisions.

Secondly, huge amount of foreign money is coming into the country only to make neat profits by taking advantage of differential interest rates. Such remittances are not here either to generate income or employment but only to play with interests. So, the massive rise in remittances is nothing but a chimera and a reverse trend could be quite damaging for the Indian economy. The day an outflow of such money begins it is bound to adversely affect not only the forex market rates and thereby rupee but also stock markets and other sectors of the economy. So, the money which is not here to do any value-addition should not be welcome by RBI.

And, finally, a killing is being made at the cost of our banking industry. Such a trade puts our banking sector to maximum exposure of risk as only a dozen defaults are enough to heighten the volatility of forex market and erode their reserves in a big way. Let's take a look at how does this trade take place in the commodity market.

A platinum metal trader located in a SEZ opens an LC with a bank and gets a credit for six months to one year. So, the metal consignment comes to India and, with little value-addition, exported back. The supplier of precious metals discounts the LC and gets his payment. Once the export is made, remittances are received immediately and the same is converted into Indian rupee and kept in the form of FDs in the bank. After one year these FDs which help such traders indulge in circular trading by opening many more LCs are converted into forex and remittances are sent overseas against imports.

What helps them do such a trade is the prevailing LIBOR rate of 1.25% and 0.5% of LC discounting charges. All these add up to only about two per cent of cost whereas the interest rate on such FDs in India is 5.5-6 per cent _ a simple killing of four per cent. Given the huge volume of the trade even four per cent makes a lot of money.

This is how traders are making money and our Commerce Ministry is also happy seeing a steeply rising graph of exports but India as a country gains nothing! Will Mr Kamal Nath and RBI do something to put an end to this pernicious trend?


POST YOUR COMMENTS
   

AR not Afar by SK Rahman

TIOL Tube Latest

Shri Shailendra Kumar, Trustee, TIOL Trust, giving welcome speech at TIOL Awards 2023




Shri M C Joshi, Former Chairman, CBDT




Address by Shri Buggana Rajendranath, Hon'ble Finance Minister of Andhra Pradesh at TIOL Awards 2023