The Hindu : Return of 'black money'?

Online edition of India's National Newspaper
Saturday, Feb 01, 2003

National

National

Return of 'black money'?

By Alok Mukherjee

NEW DELHI JAN. 31. With an unprecedented inflow of $ 5.7 billion foreign exchange into the country in just one and half months, speculation is gaining ground that "black money'' stashed away by Indians abroad may finally be making its way back to the country, though in instalments.

Data released by the Reserve Bank shows that India's total foreign exchange reserves at $ 72.4 billion came about because of the increase in the inflow of $ 18.3 billion between April 1, 2002 and January 17, 2003. Of this $ 18.3 billion inflow, $ 12.6 billion came in during April-November 2002 whereas the comparable inflow during April-November 2001 was only $ 4.5 billion. Moreover, in the one and half months between December 1 and January 17 this year, another $ 5.7 billion more came in, more than the entire inflow of the eight months of 2001.

The Reserve Bank has also woken up to the unprecedented phenomenon but has stopped short of saying that this was "illegal'' money returning home. Instead, it said that part of the reason could be that "export receipts which may have been withheld earlier due to expectation of further depreciation of the rupee are also being realised faster as the rupee has appreciated.'' But with exports not showing any extraordinary increases in recent times, experts feel that faster realisation of recent export receipts could not be the sole reason for the bulge in reserves.

Admitting that the large improvement in the external position is "unprecedented in India's own history,'' the RBI listed the major source of accretion in reserves between April and November 2002 to a $ 2.5 billion surplus in current account balance and a net capital account balance of $ 8 billion. Interestingly, it is not the non-resident Indians (NRIs) who are contributing to the surge since net NRI deposits are actually down this fiscal year till November to $ 2.1 billion against $ 2.2 billion that came in during April-November 2001.

There are two heads in the RBI table which show an unusual increase. One is `other capital' which has swelled from 2.5 billion in April-November 2001 to $ 3.8 billion in the same months of the current fiscal. The other bulge is on account of valuation changes which increased the reserves by $ 2.1 billion this year whereas the contribution of this head was only $ 0.4 billion in 2001.

One major reason for the possible return of the stashed black money abroad could be the global tightening of screws on "secret accounts'' in the wake of the international crackdown on terrorist funding.

The RBI is, however, comfortable with the current situation. According to its analysis, a substantial portion of the fresh accretion in reserves has been by way of current account surplus (20 per cent), non-debt creating capital flows (40 per cent) and by way of currency valuation (17 per cent). The balance (23 per cent) has come in by way of debt creating capital inflows and includes NRI deposits, "other assets'' under banking capital and short-term loans. The RBI, thus, feels that since the debt creating inflows are significantly low, it may be concluded that the cost of accretion to reserves is not very significant.

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