Death Knell For Hawala Trade
Quotes by authorised dealers for the dollar at Rs 42.62 on Tuesday were marginally higher than the hawala (illegal foreign exchange) rate at Rs 42.57, virtually signalling the end for an entire generation of smugglers.
Finance ministry officials attribute this to the success of Manmohan Singh's economic reforms _ initiated in June 1991 and taken forward by two different political regimes _ the basic thrust of which was lower import tariffs. A lower tariff regime and gradual liberalisation ensured that most goods were available in the domestic market.
While Singh initiated the process, the death blow was dealt by P Chidambaram last October when he virtually freed the import of gold in the country. The agencies permitted to import gold included the three canalising agencies, STC, MMTC and Handloom Handicrafts Export Corporation, and the eight banks recently authorised by the Reserve Bank: State Bank of India, Bank of India, Canara Bank, Indian Overseas Bank, Allahabad Bank, Bank of Nova Scotia, Standard Chartered and ABN-Amro Bank. Earlier, these organisations were permitted to import gold only for re-export.
The easier import regime saw a surge in gold imports, which aggregated 255 tonnes in April-October 1997-98. However, in the remaining five months of the fiscal year, there were additional gold imports of the order of 380 tonnes, taking the official gold imports to a record high.
Earlier, more than half of the gold imports were financed through the hawala route. But with official channels offering the same terms, the tide turned and the demand for smuggled gold plummeted. Hawala premiums promptly dropped from 12% in October 1997 to 5% in January 1998 before stabilising at zero.
The finance ministry is not perturbed by the fact that the shift in the gold trade has led to a diversion of dollars to finance these imports. For one, part of the gold is coming under the window opened for NRIs, so these imports finance themselves. "We are not concerned. In fact, we are thrilled that the hawala market has been virtually busted," an official said. But this positive development for policy planners could create other problems for law enforcers. Having been robbed off their traditional business, smugglers may step up other activities like extortion and narcotics smuggling.