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Promoting Hawala PDF Print E-mail
Tuesday, 23 February 2016 01:14
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A minimum import price on steel may help local steel firms but it actively promotes a hawala marke

 

The government’s decision to introduce a floor price for import of steel, aimed at ensuring prices don’t fall below a certain level, appears to be working—website steelfirst.com reported a $22 per tonne hike in prices for hot rolled coil (HRC) steel after minimum import price (MIP) of around $450 was set; after customs and safeguard duties, that works out to a landed price of around $600 per tonne as compared to the local price of around $500.

The problem is that this also gives a fillip to the hawala market. With foreign prices anywhere between $100-150 per tonne lower than the MIP, this means a consignment being imported at $400 has to be imported at $500-550. But the Indian importer will pay the foreign supplier only $400—what is then required is a fake invoice of $500-550 and, since $500-550 will have to be remitted, this means $100-150 will be kept overseas by the Indian importer. Ideally, the government could have allowed imports to take place at the market value and imposed the duty based on the MIP—of course, the duty would then have to be much higher, and would have created a problem at the WTO—but the clarification issued on the MIP makes it clear that this is not possible since ‘imported items must have a unit CIF value equal to or above the MIP”. Which means that each time anyone imports steel at the MIP, the revenue authorities will have to simultaneously start investigations on over-invoicing and siphoning off of funds overseas.

 

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