Better understanding of data is critical to mitigating the risks to the economy from illicit money.
Is black money coming back to the country through over-invoicing of exports and foreign institutional money? Kotak Institutional Equities has said in a recent report that there is more than what meets the eye in the steep rise in exports and the FII inflow data. The report tries to point out that the gaps seen in the data related to exports and FII inflows could be unaccounted money brought back to India through the above routes.
The report, authored by Sanjeev Prasad and others, says: “Our analysis of exports from India in the last few years and FII flows into India in financial year 2011 shows a wide gap between reported official data and bottom-up data.” He says better understanding of these is critical to mitigating risks to the Indian economy from ‘illicit’ foreign flows, if any.
According to official data, India’s exports grew from $126 billion in financial year 2007 to $250 billion in financial year 2011 and are expected to cross $300 billion this year. The Kotak report says engineering goods exports went up 79 per cent to $68 billion in 2011. However, the authors found that exports of engineering companies that figured in BSE-500 went up by only 11 per cent in the same period. There are several such examples of exports of a large number of listed companies not matching the trends seen in overall exports. “If this is so, either a larger part of exports is coming from smaller or unlisted companies, or the quality of data is suspect,” said Prasad.
He also points out that the reported data on FII inflows does not reconcile with data gathered from EPFR and other sources. FII investment data available from exchanges are much higher than those gathered from other sources, making one believe that the gaps need to be explained by authorities.
However, a legal expert on anti-money laundering said that it was unlikely that exports data for laundering black money were inflated and there were not enough incentives to do so. This, however, could be possible in the case of illicit money coming through the FII route. Experts said the Kotak report could have considered the fact that the exchange data on FII investments included reinvestment of profits earned in derivatives and cash segments. This need not be fresh inflows.
