Exports of farm products under scanner.

Law enforcement agencies are scrutinizing India’s exports of agricultural commodities on suspicion that the quantity of overseas shipments is being inflated by racketeers to corner export incentives and repatriate untaxed wealth stashed abroad.

Global efforts to trace, and consequent efforts to “legitimize” unaccounted money have given a fillip to the so-called fictitious exports in the last one year, said officials at multiple agencies tracking the phenomenon.

The agricultural items in question are relatively low-profile commodities such as guar and honey in the case of which exports exceeded domestic production. The money involved in the suspected racket could be as much as `500 crore, according to some of the officials interviewed by Mint. To be sure, that’s a fraction of the billions Indians are suspected to have stashed away in foreign countries (In February, the Central Bureau of Investigation put the number at $500 billion, or `26 trillion today).

Guar was one of the commodities cited by a senior Central Economic Intelligence Bureau (CEIB) official, who spoke on condition of anonymity. The gum extracted from the beans is used as an emulsifier, thickener and stabilizer in a wide range of foods.

According to a preliminary CEIB investigation, India, which handles one-third of the global supply of guar gum, exported 600,000 tonnes of it in 2011-12. India’s total supply of guar in the period was about 1 million tonnes (mt), which can only produce a maximum 300,000 tonnes of the extract.

“How is this possible?” said the CEIB official cited above. “Our investigations are pointing towards two facts. One, by inflating the exports, they are cornering the export benefits. Secondly, we found that the remittance is coming from a third country, different from that of the consignees. We suspect this is a method to route back the money.”

The Forward Markets Commission last month barred the trading of guar gum after a sharp rise in its price on the futures market because of speculation. Following this, the National Commodities and Derivatives Exchange terminated all existing futures contracts on guar seed and guar gum.

A report by the Associated Chambers of Commerce and Industry of India on the anomalies in the trading of guar and four other commodities is due this week. The report suggests that unfair trade practices may have been involved in the five commodities, according to a person with the knowledge of its contents. He didn’t want to be named.

A senior Directorate of Revenue Intelligence official, who didn’t want to be named, said the agency is looking into exports of the commodity.

Enforcement agencies suspect over-invoicing of bills, with the difference being shown as legitimate receipts.

To be sure, there is a more innocent explanation for the mismatch in numbers.

“The export data was wrongly tabulated,” said an official in the ministry of food and consumer affairs, also on condition of anonymity. “The husk of guar, which is used in cattle feed, has also been added to the data and that is the reason for the difference in actual production and exports,” said this person.

Indian government data is riddled with errors, and data is frequently revised. The government slashed the Index of Industrial Production for January to 1.1% from the 6.8% it had reported previously. This followed sugar production being wrongly reported at 13.41 mt instead of the actual figure of 5.81 mt, the government said on 12 April.

“If there is an excess of exports in comparison to the production, the only possibility I see is that there are third-country imports, which are further exported,” said Ajay Sahai, director general of the Federation of Indian Export Organisations. “There has been a lot of trading in the forward market on guar gum, so maybe to meet the demand there could be imports.”

Honey is another commodity that’s come under focus, according to an official belonging to the Research and Analysis Wing, India’s external intelligence agency.

“We have received information from the Federal Bureau of Investigation about the suspicious import of honey from India to the US,” the official said. “We collated the data and it is not matching. India’s exports to the US in 2011-2012 is over 200 million pounds. This is several-fold more than the total honey production.”

During 2010-11, the total export of natural honey was 69 million pounds. One pound is equivalent to 0.45kg.

The CEIB official cited above said that those with black money abroad are feeling the pressure of a global crackdown.

“The Financial Action Task Force efforts at the global level and the leakage of (details of) several (bank) accounts by disgruntled staff have increased their vulnerability and they are trying to bring the money back,” he said. “These low-key products are now emerging as a safe route since much of the other commodities” are high-profile, where the chances of detection are higher.

The Financial Action Task Force is an intergovernmental organization formed to combat money laundering and terrorism financing.

Source : livemint.com