We have always been discussing and following Fund flow especially when it is in relation to India Inc, recently I came across an article which talks about an increase in deposit size of Arab banks from India. When cross checked with data available from bank deposit growth in the UAE I was amazed to see the hyper growth of deposit size in UAE banks especially in the last few months of July to Nov 2010.
In the past few months, there has been an unusual surge in deposits in many high-street banks in Dubai, Abu Dhabi and financial centres in the UAE. Where the money came from is a subject of speculation in the Gulf with the regulator yet to spell out the sources.
But amid the buzz that much of it could be government money taken from reserves to help state-owned firms pay off debts next year, senior bankers and finance professionals have spotted an India angle to the fund flow.
The rush of deposits began weeks after India and Switzerland signed a revised treaty on August 30 to exchange information on tax-evaders. The pact was perceived as the first step to obtain details on money stashed away in Swiss banks. India struck a similar agreement with Bermuda, a tax haven.
Total bank deposits jumped more than 40 billion dirhams ($11 billion) in October, as per data compiled by the Central Bank of UAE , against an average monthly growth of 10 billion dirhams ($2.7 billion) since January. I don't think this is mere coincidence. It's a fact that money is moving out of Swiss banks and Dubai is an obvious choice for many Indians.
Before October, the highest jump in monthly deposits was 14.6 billion dirhams ($3.9 billion) in June - less than two months after Indian tax authorities notified they had initiated information exchange agreements with nine jurisdictions, including British Virgin Islands, Isle of Man and Jersey, which has been a favourite tax haven. "Some of these pacts are yet to be notified, and data will be shared by a tax haven only after precise information is sought. But, such announcements push people to move their money.
Dubai is convenient because there is no tax and banks ask few questions if money deposited has no drug or terror trail. The whole transaction can be broken into a few simple steps. First, a firm is floated in the Dubai Free Trade Zone and then staffed with local directors, many of whom are Indians working in the Gulf. Secondly, a bank account is opened in the firm's name. The money is then wired from Switzerland or a tax haven to either a Dubai bank, or to the UAE arm of an MNC bank. Finally, it is transferred to a local Emirate bank. The cash received by the newly-formed company in Dubai is shown as trading income or consultancy fee from international clients.
India Inc's unaccounted money is estimated to be around 40,00,000Cr out of this 20% is said to be in Tax heavens all around the world. India's Accounted GDP is projected to be around 4800000Cr. With the Black economy as big as the Accounted economy, we could be easily one of the largest economies in the world.
I guess it is high time the government start thinking in lines of how to bring back this amount back into the system.
very informative. but one thing, be clear be sure our govt can't think. it's too busy hiding and stealing and bribing...thinking specially in terms of growth or benefit for the country or for its people is not even considered as govt's job by the politicians. its quite surprising how are we as a country surviving let alone functioning. it's not that the govt or the apex courts aren't aware, they are simply not bothered. take the radia tapes for example, no action on the people involved they are busy digging out and framing the person behind the tapping of the lines and leaking of the tapes!
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