Underground Couriers Safe Conduit for Black Money

by A.V.V.S.K. Rao

The Greater the Wealth, the Thicker will be Dirt. — J.K. Galbraith, (Harvard, USA)

Introduction

The black money created ‘Parallel Economy’ poses a serious threat to stability and growth of the real (product) economy. Since the 1990s clandestine deals have been growing in volume and complexity at an alarming rate. Besides, black incomes are accentuating the inequalities of income and distributable wealth and breeding a new class of rich/crony capitalism in an economy which is already fragmented and stratified.

If one takes various studies right from Nicholas Kaldor of Cambridge (1956) to the recent highly methodical estimates on black money by the National Institute of Public Finance (the study was done under the directions of Dr S. Acharya, currently Deputy Governor, RBI), the black money would be in the range of 25 to 30 per cent of the GDP in India.

Money-laundering serves as a funnel to illegitimate money. In India, money-laundering is popularly known as ‘Hawala Transactions’. It gained popularity during the 1990s when as part of economic reforms, the ‘Control Regime’ was dismantled. Hawala (an Arabic word) is an alternative or parallel remittance system. The transfer of money or information of speculative nature between two persons using a third person gives rise to illegitimate transfer of value called Hawala Transfer. Hawala (meaning transfer) is a popular and informal value transfer system based on the performance and honour of a huge network of money-brokers. Out of 140 countries, India has been ranked 70th in 2014 by the Anti-money-laundering (AML) Bassel Index.

India has a massive underground network of financial couriers that are estimated to conduct over Rs 1000 crores a day in undocumented cash transactions for wholesale business across the country. Now, these courier agencies were hit hard by the Government of India’s unexpected measure of phasing out Rs 500 and Rs 1000 notes before December 30, 2016. Delhi-based Angaria cash-couriers have been scrambling to turn parts of cash holdings into gold or diamonds, or reaching out to shadowy companies willing to exchange, for a commission, unaccounted money for cheques.

A Reserve Bank of India circular to all commercial banks made it clear that customers would have to furnish indentity and residence documentation to exchange Rs 500 and Rs 1000 notes from November 9, 2016. A customer is permitted to deposit a maximum of Rs 2.5 lakhs in his account which is treated as surplus (saving) after consumption from his disposable income (yd). In terms of economic logic this can be represented as S=Y-C. In other words, in a macroeconomic sense, saving is treated as unspent income after consumption expenditure. This savings reaches institutions like banks and become various types of deposits. A part of the savings or surplus would be kept in the form of gold, diamonds, foreign and real estate which fetch the holders of these assets higher value than the deposits kept in financial intermediaries like banks, and also Post Office SB Accounts.

The radical stance or demonetisation is expected to strike a blow on unaccounted money (black money) which has assumed dangerous proportions and threatening the external front and internal economic stability and objective of achieving equanimity. However, there are many avenues which provide safe haven for ill-got surplus value (wealth). Delhi-based Angarias from the Chandni Chowk area feel that the sudden and unexpected move by the Union Government is a real challenge for them and for their customers. It requires weeding out lakhs of old notes, and somehow replacing them with new bank notes in the denomination of Rs 2000 and Rs 500 before the RBI deadline. These couriers have done it in March-July 2014 when the Reserve Bank of India had taken a decision to phase out high denominations (Hd) currency notes issued before 2005.

The Underground Cash Transactions

Angarias—the Gujarati word for courier, used synonymously with others such as Chanikya in Hindi—typically charge less than one per cent commission in return for near-instant, tax-free financial transfers. Angarias—underground network of financial workers—conduct undocumented cash transactions across the country. Reliability, fastness, efficiency, and trustworthiness are characteristic of these couriers. In layman’s term they run unofficial courier-cum-banking services. Many businessmen, who operate and transact between Mumbai and Gujarat, prefer Angaria couriers. This underground courier trade is mostly centred round the diamond trade in Mumbai which, in turn, is built around customers who pay cash. In Delhi, however, grain traders, cloth merchants and a welter of other wholesale businesses also revolve around transactions routed through Angarias.

Many businessmen feel that Angarias are more secure than on-line money transfers. They transfer cash and jewellery from Mumbai to big cities like Delhi, Kolkata and Chennai and the system remained sound and robust. Through the Angaria service several crores are transferred, the bulk between Mumbai and Ahmedabad, Baroda, Rajkot, Surat, Naksari, and other places in Gujarat. The Angaria business is deeply embedded in India’s business fabric. Most Angarias are from the Kathiavar region in Gujarat and have been in business for a long time.

Since independence, the Angarias are the mainstay of transacting money, jewellery, gold, diamonds, precious stones. The Angaria service started in the pre-independence era and gained momentum in the 1950s and 1960s. In the 1970s it was well organised and well trusted like any other business. Though the business has grown significantly since the 1970s along with India’s black-money economy, economic historians record that similar operations date back even before independence. There existed a well-developed Indian mercantile network stretching across the South Asian region in the colonial era. It was recorded that businessmen involved in the opium trade used couriers to ferry cash from Bombay to Central India.

Diamond trade and Angaria-couriers are inseparable and the mutual trust has been existing for decades. The reason why Angarias are taken as a couriers or medium of transfer of money, jewellery and diamonds is that these are not to be noticed by taxmen. Hence, this type of transfer can be termed as hawala transaction. There are more than 200 Angaria couriers in Mumbai, employing around 5000 to 7000 persons. According to one estimate, the total value of goods carried by these including cash, is valued at between Rs 1000 crores and Rs 70,000 crores per annum.

Conclusion

The increase in the amount of black money in India over the past four-and-half decades led to the perptual growth of economic dualism (coexistence of black and real economies). The major consequence of black money is it limits the resources available for the government and as a result government expenditure cannot increase commensurate with the needs of development.

The infusion of black money in the economy leads to higher sectoral inflation which destablises the allround growth. Most of the government policies—monetery, fiscal or pricing—are based on the ‘white money economy†and applies to white money only. Therefore the policies remain ineffective in the short run. An economy with more black money will become highly vulnerable and unpredictable to extenal shocks. The above analysis clearly brings out the fact that India, in the present context, is very vulunerable to hawala transactions and the mushrooming of black transactions.

Prof A.V.V.S.K. Rao is an Honorary Professor in Economics at the Jawaharlal Nehru Institute of Advanced Studies (JNIAS), Hyderabad. He was formerly Senior Professor and Head, Department of Economics, Osmania University, Hyderabad.