India imported 79.2billionworthofgoodsfromChinabetweenJanuaryandSeptemberthisyear.Atleastthat’swhattheofficialfiguressuggest.ButaskChinaandyou’llgetacompletelydifferentanswer.Ourneighbourbelievesthatitshippedgoodsworth89.7 billion.
Hmmm!
So where did the $10 billion go exactly? (View Highlight)
the gap stood at 2.8billionin2018.In2019,itjumpedto6.5 billion. And in 2022, it hit $10.5 (View Highlight)
If you ask Ajay Sahai, director general of the Federation of Indian Export Organisations, he’ll say that it takes up to 2 months for Chinese shipments to reach India. That means China might record a shipment in the month of September, but we won’t see it in the official Indian tally immediately. We’ll record it only once it reaches our shore. (View Highlight)
The second reason is trade on the high seas. (View Highlight)
For instance, if someone in India is importing goods from China and a business in Oman learns that the shipment is en route, the Omani business could reach out to the Indian importer, strike a deal and reroute the cargo to their shores.
China records it as an export to India. But since it doesn’t show up at our ports, we don’t record it as an import. (View Highlight)
So let’s look at more explanations. Perhaps a not-so-innocent one called under-invoicing. To put it bluntly, cheating! (View Highlight)
They declare that the value of the imported product is only ₹7 lakhs even if its true worth is ₹10 lakhs. In short, they’re under-invoicing the product. And they’re trying to get away by paying a lower customs fee. (View Highlight)
Now while the importers declare the low value in India, they still have to pay the exporter the full value — i.e. ₹10 lakhs from our example earlier. That’s where the infamous hawala comes in. (View Highlight)
The system is simple — the importer reaches out to a hawaldar (or broker) in their country and hands over ₹3 lakhs in cash. This hawaldar reaches out to a fellow hawaldar in China to exchange details about the deal. Then, the hawaldar in China contacts the exporter and hands over the cash. (View Highlight)
But, they don’t actually transfer the physical cash across borders. Cash doesn’t even move from one country to another. Instead, the system is based on trust. One hawaldar (the one in China) is indebted to a fellow hawaldar in India. And over time, the debt and transactions cancel each other out. (View Highlight)
There’s hardly any paperwork and it’s fairly anonymous. (View Highlight)
However, what if the importer didn’t declare the true value of the imported goods? Imagine they declared ₹100 as the value of the product and paid ₹18 in taxes. While in reality the product’s actual worth is ₹150 and the importer should’ve shelled out ₹27 as GST. (View Highlight)
The importers use this price arbitrage to sell the product at dirt-cheap prices in the bustling bylanes of the grey market. (View Highlight)
But if they claimed a tax credit on this sale, they would have to produce the invoice. And then the tax authorities would most certainly find out that they had under-invoiced the actual product when they first shipped it to India. Which is why they don’t give you invoices when they sell you iPhones in the grey market. No invoice. No ‘Input Tax Credit’! (View Highlight)
And according to CAIT and we quote, “Surprisingly, it will be seen that in most of the cases, where Chinese goods have been imported, nobody has claimed [credit on] IGST. This proves the point that the importer has sold the material in grey market for which nobody has claimed IGST [credit] paid at the time of imports.” (View Highlight)
So all that CAIT wants the Indian authorities to do is play “match the importer”. Look at the GST paid at the port and then see if the importer is claiming any credit for it. If not, knock on their doors! (View Highlight)
