For instance, we need to consider the following factors:

• Performance of the AAP Government,
• Perception of corruption by the AAP,
• Controversy over the official bungalow of Arvind Kejriwal,
• Pollution in Delhi,
• Kejriwal’s failure to protect minority
• Loss of even partial status of the Delhi State given the powers handed by central diktat to the LG, incumbency and the urge for a change,
• Failure to strike alliance between AAP and INC,
• Kejriwal labelling Rahul Gandhi as amongst three corrupt leaders and
• Yamuna water being unfit for consumption
• Selective deletion and addition of electors between the notification of elections on January 7, 2025 and the final electoral roll issued thereafter, on January 17, 2025. The increase was a substantial 76,366 electors in the 10 day period, from 1,55,37,634 to 1,56,14000.
• The EVM, Factor and other alleged election malpractices.

And/or

• Huge income tax relief announced in budget up-to INR 1,13000, and more,
• Landing of deported ones at Amritsar, Punjab rather than that at the Indira Gandhi airport New

The picture of the repeatedly altered register of voters has ensured a mind-boggling impact. This factor has emerged despite the fact that a special summary revision of electoral rolls with reference to the qualifying date of January 1, 2025 was started in all the constituencies. The Draft Electoral Roll had been published on October 29, 2024 and prominently displayed at all places inviting objections by November 28, 2024. This Draft Electoral Roll contained 1,53,57,529

Electors.The registered electors shown in the press release by the CEO at the time depicted 1,47,97,990 electors for the 2020 Assembly, as per the summary of electors posted by the Election Commission of India (ECI) on its web page on Assembly Elections of NCT Delhi 2020. Thereafter on Jan 06, 2025 17:02 hours IST, the ECI released the final electoral roll of Delhi which showed that the national capital has a total 1,55,24,858 voters, 83,49,645 male and 71,73,952 female voters, third gender 1,261.

• Registered Electors in NCT Delhi for Assembly Elections 2020 = 1,47,97,990
• Registered Electors, finally shown in NCT Delhi in Lok Sabha elections 2024 = 1,52,14,638
• Jan 06, 2025 17:02 IST, Registered Electors Summary revision ECI = 1,55,24,858

(Male 83,49,645 Female 71,73,952 , Third Gender 1261 Total 1,55,24,858)

• Elections notified on January 7, 2025, Total Registered electors (ECI) = 1,55,37,634
• ELECTORS AS ON 01.2025 (CEO NCT DELHI) = 1,56,14000

Issue of Electoral Rolls

The repeated and substantial alterations of registered voters by the ECI itself makes the exercise cloudy. The absence of any credible explanation as well as deviation from the norm also shatters the confidence of the electors because of an absence of any degree of fairness. Even under the amended section 14 of the Representation of Peoples Act 1950, the date of eligibility for the registration of electors is January 1, April 1, July 1, and Oct 1 of each year and in the present case of Delhi for the February 2025 elections it is January 1, 2025 under amended section 14 ibid. Since the process had begun on October 29, 2024, but the revised rolls were published only by January 7, 2025 the date of notification should have not resulted in any hike/ injection of electors 10 days thereafter (76366 voters were added as has been explained above). There have been allegations of the unauthorised deletion of names and addition of voters, hence, given that the ECI is a constitutional body owing accountability to the people of India, it is bound under the Constitution and the law to place details regarding the entire process related to the inclusion of new voters, including the documents therein, in the public domain.

Besides, a duty is cast upon the ECI to explain how: a) 13,145 electors got inducted in the voter’s list of the Badli constituency; b) 16,413 electors got inducted into the list of the Nangloi Jat constituency c)17,549 electors got inducted into the list of the in Mundika constituency; d) 7,387 into the lists of the Shahdra constituency; e) 24,759 voters into the lists of the Burari assembly constituency; f) 18,404 added into the list of the Bawana constituency; g) 8,638 voters added into the list of the Vikaspuri constituency and, h) 2,209 votes added into the New Delhi constituency. These examples are illustrations and other constituencies too saw such an increase between the Lok Sabha elections held in Delhi on May 25, 2024 and the NCT assembly elections held on February 5. 2025.

The YouTube news channel run by journalist, Ajit Anjum (@AjitAnjumOfficial ) has made public the study conducted by it on the gross irregularities into the voter registration process that includes the registering of multiple electors at addresses of (six) –in large part—representatives of the BJP!. This study related to a micro 32 addresses from which location, as many as 635 votes ranging between 15 to 44 votes per address were added! Incidentally, some of these “addresses” are even not permitted to be labelled as a residence and some are so small in size that the number of persons (whose names were registered from there) could not have been said to have been registered under:

The pattern in this study (expose) provides a clear indication that there has been a process of “bulk registration” of voters, almost as if targets were given for the exercise.[1]

Voter Turnout

The ECI has faltered, again, on the release of voter turnout data too by altering the timing of the first press release to 5 p.m. instead of 7 p.m. which is one hour after scheduled voting time. The voter turnout at 57.70% in the ECI Press release (vide No. ECI /PN/179/2024 dated February 5, 2025 as of 5.00 p.m.) Though the scheduled voting time was until 6 p.m. The voter turnout percentage was revised to 60.42% by 11.30 p.m. (vide No. ECI /PN/180/2024 dated

February 5, 2025). There was no official press release at 6 p.m. that is at the end of scheduled poll time. Incidentally, the CEO Delhi released yet another figure for voter turnout (60.54%) without mentioning any time. The total number of votes polled have been declared as 94, 51,997.

Status of votes secured by parties, winning margins of contestants and overall impact

An analysis of the votes secured by the parties and the candidates with losing and winning margins in all the 70 seats –including votes polled by the candidates of three major political players, i.e. the AAP, NDA and INC shows that AAP lost 16 seats by a margin of 10,000 votes or less and NDA lost 8 seats in this range. A further analysis also shows that the NDA also won three seats by a margin of less than 1000 votes: Sangam Vihar (344 votes) Tirlokpuri (392 votes) and Jangpura (675 votes). In another three seats, again, the margin of victory of the BJP is very slender between 1001 and 2000 votes: these are Timarpur (1168 votes), Rajinder Nagar (1231votes) and Mehrauli (1782 votes). In another three seats AAP lost by similarly small margins: Malviya Nagar (2131 votes), Greater Kailash (3188 votes), New Delhi (4089 votes), while in the remaining seven seats AAP lost by 5001-10000 votes: Shahdra (5178 votes), Chhatarpur (6239 votes), Mangolpuri (6255 votes), Hari Nagar (6632 votes), Dwarka (7829 votes), Narela (8596 votes), Palm (8952 votes). In contrast, in the seats where it emerged victorious, APP has won all seats by a margin of more than 2,000 votes.

Vote Share

Seats where the margin of loss by APP is less than the votes secured by INC

Pre-poll Opinion and Exit Polls

1. Latest Opinion Poll by Phalodi Satta Bazar: This poll conducted by Madhuri Adnal Time (updated Friday, January 31, 2025, 18:50 hours forecast AAP securing 38-40 seats and BJP an estimated 30-32
2. Gaurav Sharma, in oneindia.com  (published on Monday February 3 2025, 11:08 hours) com/new-Delhi, the opinion polls suggested that the AAP may bag 37 to 40 seats. BJP may clinch 20 to 25 seats, Congress 0 to 2 seats.
3. Hindi Khabar and Mind Brick India in its poll suggested that AAP would get 55 seats. The BJP 15 and INC none.

Conclusion: The pre poll opinion in a majority of the surveys showed that while the APP would get less seats than earlier –the number could reduce to 38-40 seats – it would still form the government while the BJP would get a respectable number of 20 to 32 seats but would not be able to get majority.

DELHI EXIT POLL NEWS 18 www.news18.com › elections › assembly Delhi Assembly Election 2025 Exit Poll Results Latest Updates …Feb 5, 2025 · Get the latest Delhi Assembly election 2025 exit poll results, predictions for Delhi elections, and AAP, BJP, Congress seat forecasts. 

Delhi Assembly elections 2025

Factors that acted as the drivers of a sudden change between January 31, and February 5, 2025

It appears obvious from the above that the scales shifted substantially by the time the exit polls were conducted. Almost all the polls showed the BJP get a thumping majority, on its way to form the next government. AAP was predicted to be trailing behind. Scientifically, we need to therefore conclude that something major occurred between January 31 and February 5 to tilt the scales so decisively.

Some factors

1. Union Budget presented on 1^st of February and FM Sitaraman claims to fill the pockets of middle class and doles out 1 lakh crore in the form of Income Tax Waiver.
2. All tax payers having an income of Rs. 12 lakh and the Salaried persons having an income of 12.75 lakh get total waiver of the income tax thus getting up-to 1.13 lakh rupees per annum as tax waiver and benefit on two rented houses and many other benefits.

Impact of the Income Tax Waiver on Delhi electors

(Income Tax Revenue in Accounting Year 2023-2024)

Significantly, 62.21% of from the Rs.16,63,686.47 crore income tax revenue, during AY 2023-24, came from the three states of Maharashtra 6,05,268.35 crore, NCT Delhi 2,21,522.20 crore and Karnatka 2,08,168.88 crore.

The income tax paid by NCT Delhi turns out to be 13.32% of the total income tax from whole of India. Out of Rs. One lakh crore doled out by the FM by income tax relief, the amount for NCR Delhi totals Rs. 13,315 crore per year.

Income Tax returns filed during 2023-2024

During the financial year 2022-23, in NCT Delhi, 37,06,999 persons filed income tax returns out of which 12,25,820 are the beneficiaries of the income tax relief doled out by the Finance Minister on February 1, 2025. The ECI has stayed mum on the announcement of this dole In the budget four days before the scheduled election. It appears apparent that votes have been lured by this significant dole out. Out of the total beneficiaries, even if 20% of the voters tilted towards the BJP, more than the present win was assured.

This can be established if we analyse the preferences expressed by various segments of the voters in a survey conducted by C Voter that gave a general idea of the demography tilt in favour of the BJP and AAP. Published by India Today, the exit polls have predicted a victory for the BJP in Delhi India Today News Desk New Delhi, UPDATED: Feb 6, 2025 23:12 IST Written By: Prateek Chakraborty. Hence, the figures of preferences of various socio-economic, religious, gender-based, and age group preferences displayed in the C Voter survey published by India Today, strengthens this contention.

From the accompanying table it is patently clear that higher income groups have tilted to BJP especially those having income in this tax bracket. This displays an overall tilt of 50%, while those with an income of Rs. one lakh or more per month show a 54.9 and 61.1% preference for BJP while AAP has a support of only 32.7% and 25.8% respectively

Similarly there has been a greater shift of the male voter towards the BJP on this count. A total of 51.4% men have preferred the BJP whereas, on the contrary, 50.7% of women voters preferred AAP. This shows the impact of this budget announcement, again.

Since the budget has nothing for the house wives and labour has also been denied any benefit, more than 51% of these categories, i.e. housewives 51.5% and labour 51.8% have opted for AAP.

Since youth has not been given the requite hope from the budget, youngsters between 18-22 and 23-35 have preferred AAP to the tune of 46.7% and 45.4% respectively

This income tax relief is only beneficial for the employed, who come from college levels and professionals who can have start-ups and loans. Therefore, the impact of budget announcement of tax relief is manifest in these categories for BJP: 53.9% of the above high school and 54.5% professionals have preferred BJP

Another factor that has probably played a role in the dramatic last minute shift was the deliberate decision of the government of India to give permission for the landing of the first US military airplane at the Guru Ramdas International Air Port Amritsar not in Delhi. This carrier transported, in handcuffs and chains, 104 deported migrants. Of these 33each were from Gujarat and Haryana, 30 from Punjab, and three each from Maharashtra, Uttar Pradesh and Chandigarh,

Though the numbers of deportees were highest from Gujarat and Haryana, a compliant and complicit media had begun a campaign to depict those deported as only from Punjab. There was a significant undercurrent of anti-Sikh minority bashing in the ‘Godi” media coverage. However, the chief minister of Pubjab, Bhagwant Mann announced government jobs for all the 30 deportees from Punjab. This too had its impact in NCT Delhi: 49.1% Sikhs and 63.1% Muslims preferred AAP to any other party in the polls.

Acknowledgements: The reaction of voters at pages 6,7 above have been taken from the C Voter Survey published by India Today on February 6, 2025. The income tax data has been taken from the official website of the tax authorities. The voter percentage and other voter related data has been interpreted from the website of the ECI and the CEO, Delhi.

(The author is former Dean, Punjab University Faculty of Medical Sciences)

Disclaimer: The views expressed here are the author’s personal views, and do not necessarily represent the views of Sabrangindia.

[1] The author states this because of the similarity in pattern: the same numbers of registrations getting from different locations, irrespective of the size, nature or status of place or of Residents. This is normally not possible without a connivance of the authorities and some protection from the powers that be. The Table raises the question, has the process of registration of electors been manipulated/vitiated for the injection of fake electors?

Related:

SABRANGINDIA EXCLUSIVE: Election 2024, ECI: Technical glitch, gross negligence or deliberate manipulation?

VFD’s draft reports points to “electoral manipulation and irregularities” in Haryana and J&K 2024 assembly elections

EVM row: Winning MLA from Malshiras (Markadwadi) issues ultimatum to ECI, demands elections by ballot papers

The post Who orchestrated APPs failures, the FM and her ex-FS or the ECI? appeared first on SabrangIndia.

Finance Minister Nirmala Sitaraman’s recent announcement on divesting two state-run companies, Air India and BPCL has created a furore. The decision would help the government meet its divestment target of Rs 1 lakh crore in the current fiscal year. With the Reliance Industries expected to play a role in the deal, the question arises that will Reliance become the ultimate beneficiary of the deal? 

Courtesy: News Click

The post BPCL Divestment: Who Benefits? appeared first on SabrangIndia.

The post Millennials lampoon Nirmala Sitharaman, trend #BoycottMillennials appeared first on SabrangIndia.

The new proposals announced by Finance Minister Nirmala Sitharaman will not resolve the deep-rooted problems faced by the Indian economy.

The post Sops for Rich, Lip Service to Poor appeared first on SabrangIndia.

So many reports of joblessness and a slowing down economy, retrenchment in many industries and concerns by economists did not stir up the government as much as the comments from some corporate sector leaders, ending with the Niti Aayog Vice Chairman Rajiv Kumar’s comments that the “ongoing stress in financial stress is unprecedented in the last 70 years”. One can only hope that these leaders will start speaking early enough next time and do not wait until we hit the bottom.

But the Minister started the press conference, explaining through a graph, that India’s growth is way far ahead of rest of the world. Apart from the fallacy of comparing the 2.6% growth of a 20 trillion dollar economy and 7% growth of a 2.7 trillion economy, one wonders if the economy is so rosy and “comfortably positioned” why did the Minister hold a press conference in a panicky mode and announced slew of measures aiming to revive the economy.

The Minister repeated time and again that the government “respects and honours wealth creators”. Sounds good. But who are the wealth creators as identified by the Minister? The corporations. Nobody else.

What about the informal sector, whose back was broken by demonetisation, where this crumble began? The sector contributes over 54% to the GDP and employs over 80% of India’s workforce.

Or agriculture, which has the potential to revive the economy, which contributes 15% to the GDP and around 600 million people directly or indirectly dependent on farming. There was nothing in Minister’s kitty for the sector.

Instead, pinning hope only in the corporate sector, the Minister reassured the Ease of Doing Business measures to continue, including self-certification and faster environmental clearance to projects.

With tax concessions and sops to the corporate sector and super rich – like withdrawal of angel tax for start-ups, withdrawal of enhanced surcharge levied on short-term and long-term capital gains and additional liquidity in non-banking financial companies (NBFCs) for sale of houses, vehicles and consumption goods (which is otherwise stagnant now) – the Minister expects a miracle from the sector to spin-out a magic to revive economy.

When the government is pushing so much for the corporate sector and its welfare, once cannot but recall the Oxfam inequality report released earlier this year. It said:

“Billionaire fortunes in India increased by 35 percent last year – Rs 2200 crore a day – while 13.6 crore Indians who make up the poorest 10 percent of the country continued to remain in debt since 2004.”

It also said:

“Last year, the wealth of top 1 percent in India increased by 39 percent whereas the wealth of bottom 50 percent increased at a dismal 3 percent. Getting the richest one percent in India to pay just 0.5 percent extra tax on their wealth could raise enough money to increase government spending on health by 50 percent.”

It takes a lot of insensitivity and miscalculation to believe that by helping the already wealthy 1%, some of them known to stack-up their profits in tax heavens, the economy can be revived and there is not even a pretention that the government is concerned about the “bottom 50%”.
 

Comical: The Minister thinks auto industry can be revived by lifting government ban to buy vehicles for its departments

Interestingly, after her predecessor claiming to crack a whip on tax evaders, probably because of the criticism her government received after the suicide of Siddhartha of Café Coffee Day, the Minister was singing a different tone, pacifying tax evaders. Any life lost is tragic, but one cannot forget that despite over 120 people dying because of demonetisation, there wasn’t even a whimper from the government, but a complete denial of it.

It’s a bit comical that the prescription the Minister had to boost demand and by which to revive the auto industry was to lift the government ban to buy vehicles for their departments. Seriously? If that’s a solution, maybe increasing consumption of vegetables by government officials may help the agriculture sector, more meat dishes may help meat industry and a glass of extra milk per day will help the dairy sector!

The banks are assured of a capital infusion to a tune of Rs. 5 lakh crore, which “will benefit all corporates, retail borrowers, micro, small and medium enterprises (MSMEs) and small traders” as the Minister said. The Minister was silent on the whopping Rs 10 lakh crore non-performing assets (NPAs) accumulated the past nearly 8-10 years because of excessive and unbridled lending.

Over 70% of the NPAs are caused by corporations and top 12 corporate NPAs cost exchequer twice as much as farm loan waivers. Without any measures to check the slide of NPAs, pouring in more money into banks to augment the lending will only deepen the pit where we are already.
Besides, there was nothing in what the Minister said, indicating recovery of bad loans from defaulters. By ensuring more lending and no commitment to recover bad loans, the Minister was sending a wrong signal, which will further choke the banking sector, and compelling to pump in more public money to help them survive.

Minister, the diagnosis of what is ailing the economy was wrong and hence it was the wrong steroids you injected on August 23.

Courtesy: Counter View

The post To India’s FM informal sector, contributing 54% to GDP, isn’t the ‘real’ wealth creator appeared first on SabrangIndia.

The raft of measures announced by India’s finance minister Nirmala Sitharaman for supposedly boosting a sinking economy are unlikely to rescue flagging economic growth and don’t even address the key problems of lack of purchasing power with the people and raging unemployment. It’s rearranging the furniture when the house is on fire.

The post Economic Slump: Modi Govt Re-Arranging Furniture When House is on Fire appeared first on SabrangIndia.

• Tax system in india has been gruesome and tedious process for the honest tax paying citizens who choose to avoid trouble during “surgical strikes” on black money.
• The multiple taxation system by the Centre as well as the States has great cascading effects.
• For example, if trader buys office supplies for Rs. 20,000 paying 5% as tax. It charges 15% service tax on services of Rs. 50,000. Currently, he has to pay Rs. 50,000*15% = Rs. 7,500 without getting any deduction of Rs. 1,000 VAT already paid on stationery.
• In order to overcome these snags, the government proposed the Goods and Services tax, which seeks to combine the taxes levied by the Centre and the States.
• It is a consumption based tax i.e. the tax will be received by the state in which the goods or services are consumed and not by the state in which such goods are manufactured. The Centre levies intra-State tax on supply of goods and/or services called the Central GST (CGST) while that levied by the States is called State GST (SGST).The Centre levies Integrated GST (IGST) in case of inter state transactions.
• The GST council will determine the tax structure and the tax rates to be levied and will consist of the Union finance minister as the chairman, the Union Minister of States and Minister representing each of the states.
• However, our concern is GST has changed its colour over time. Initially it was conceived to be a single uniform rate across all product categories, but the shape that the GST has taken is far removed from the actual concept of one country-one tax. What instead we have got is a multi-ties tax structure with 4 different tax rates –5, 12, 18 and 28 per cent. Besides, there would be  exempted and zero-rated goods, which means there would be at least six different categories of products under GST.

• The government is planning to set up an authority to see if any reduction in tax rates after GST is passed on to the consumer by companies or not. The problem behind this? This could be a backdoor entry of inspector raj. Experts say that prices should be market determined and no government authority has the business of deciding prices for goods and services.
• Rajat Mohan, director, indirect taxation, Nangia and Co. said that "The bigger issue in this is valuation. If stage one of a good is manufactured in Delhi, stage two in Noida and stage three in Faridabad, how would a company value the goods at different stages. The GST law does not give a formula for valuation and this could create dispute between manufacturer of goods and services and the tax department." Businesstoday
• Amongst the haullabaloo about GST, one major aspect is being ignored, that is, the aspect of federal structure. The GST council will determine the rates that the states are supposed to levy, which is in violation of the basic structure of the Constitution of India.
• It is essential to be noted that different states have different revenue requirements and also they deal in different goods and services. It might become difficult for the Centre to cater to the requirements of each individual State and Union territory.
• In essence, with the GST coming in, the States lose their autonomy to deterime the tax rates, which might vary from one state to another. Consequently, it will increase the dependence of the States on the Centre.

Currently the GST rates around the world are as follows:

Australia  —-10%
Bahrain—– —–5%
Canada —- —–5% (GST) HST 9.975%- 15%
China ————–17%
Japan — ——-8%
Korea — ——10%
Kuwait—— —–5%
Malaysia — —-6%
Mauritius — —–15%
Mexico— —-16%
Myanmar  ———-5%
New Zeland — —-15%
Phillipenes — —12%
Russian Federation-18%
Singapore——– 7%
South Africa-14%
Thailand —— —7%
UAE ————-5%
USA….0- 7.5%
Vietnam  ——10%
Zimbabwe —- —-15%
India —— —– >18%- 28 %

Sabrangindia
 

• Many countries have, immediately after the implementation, slashed the rates of the GST, which is a hunch in case of India as well, as the GST rates in India are proposed to be the highest amongst other countries in the world.

(Vatsal Gosalia, National Law University, Mumbai)

The post GST: what does it mean, speculation and impact appeared first on SabrangIndia.

THAT the large non-performing assets (NPAs) on the books of banks, especially public sector banks, is the only blemish in India’s continuing economic story, is the official view. Speaking recently at the Council on Foreign Relations in New York, Finance Minister Arun Jaitley reportedly declared that NPAs were “one very big challenge” facing the government, and resolving that problem was its “top priority”. Parallel to this, others such as top-level Reserve Bank of India officials, have been floating trial balloons, in the form of recommendations on various methods of addressing the NPAs. Not the least controversial among these suggestions is one, which calls for the sale of equity and assets by public sector banks, which will shrink their size and reduce government shareholding to well below 50 percent. NPAs are providing the final push for re-privatisation of banking. But opting for this may amount to throwing the baby out with the bathwater.

It cannot be denied that NPAs on the books of India’s banks have been rising rapidly in recent times, and provision for loss assets is affecting profitability extremely adversely. The ratio of gross non-performing assets to total advances rose from 5.1 percent at the end of March 2015 to 7.8 percent at the end of March 2016 and 9.1 percent at the end of September 2016. The figure is expected to exceed 10 percent by March 2018.

This sharp increase in GNPAs during the tenure of the current government is the result of two factors. First, the decision of the Reserve Bank of India to put to an end the practice of restructuring non-performing loans and treat the resulting ‘restructured’ assets as standard assets. And, second the unwillingness of the government to set aside adequate funds to write off the bad loans of the public sector banks, which were the principal locations for bad assets. GNPAs with the public sector banks stood at Rs 5.02 lakh crore at the end of March 2016, but the budgetary support for recapitalisation during 2015-16 and 2016-17 amounts to a tenth of that sum or Rs 50,000 crore.

This reticence to recapitalise adequately was a signal that the government would not relax its fiscal conservatism to release resources to restructure the public sector banks, leaving them finally to their own devices. This does not meet the criterion of fairness, since what was happening to the public sector banks was, in substantial measure, the result of other policies being adopted by the government. Two such policies need special mention. One was the decision to substantially relax a range of controls on foreign capital inflow into the economy, through moves first adopted in the early 1990s, that gained momentum subsequently. This resulted, during the post-2003 surge of cross-border capital flows worldwide, in a huge infusion of external liquidity into India that was nowhere near matched by foreign exchange outflows either for current expenditure or investments abroad. The increase in liquidity swelled deposits with the banks and forced a sharp increase in the credit advanced by the banking system. As the Reserve Bank of India (RBI) has itself recognised, the rapid build up of credit resulting from the expansion in deposits provided the ground for inadequately informed or risky lending decisions.

The second set of policies that underlie the bad debt problem was the decision to encourage private players into the infrastructural areas and incentivise investment by them, to make up for shortfalls in public investment as a result of the fiscal ‘crunch’. Simultaneously the government in the name of financial reform shut down the development banks with access to lower cost capital because of lending and guarantee support from the central banks and the government. Development banks were too dependent on the State and prevented the provision of a level playing field for the private sector, it was argued. So the promoters of many infrastructural projects, deprived of access to development banks, had to turn to the commercial banks for financing. Possibly mistaken that these projects had an unstated government guarantee of viability, the banks flush with funds came forward with the funding.

Unfortunately, many of these projects proved unviable, and soon were defaulting on their debt service commitments, contributing in substantial measure to the NPA problem. So the government’s policy of private sector based infrastructural development, combined with its decision to close development banks, led to increased bank exposure to risky infrastructural projects with long gestation lags.

The effect of all this has been a now forgotten feature of post-liberalisation banking in India. That effect was a post 2003 credit surge. That surge increased exposure to more risky sectors and borrowers and resulted in a reversal of the decline in the Gross NPA ratio ensured by a restructuring exercise that began in the mid 1990s. GNPAs had come down from 15.7 percent of gross advances in 1996-97 to 10.4 percent in 2001-02, 5.2 percent in 2004-05and 2.3 percent in 2008-09. It is in the period since then that the ratio has again risen back to an estimated 10 percent plus currently. In sum, the years of liberalisation and reform have been characterised by a decline, followed by a rapid build up in the NPA ratio. Hence addressing the phenomenon required the State to rethink the policies that led to the explosive NPA turn-around.

Those policies led to an unsustainable expansion in commercial bank credit to finance the private consumption and investment that drove the economy’s high growth. With the credit boom running up against large scale default, that growth is under question. The Reserve Bank of India’s Financial Stability Report released in December 2016 recognised this strain when it said that NPAs together with the danger that deteriorating macroeconomic conditions could worsen the problems faced by these banks, had made the banks “risk averse”, as they focused on “cleaning up their balance sheets”. Outstanding non-food credit from the SCBs, which rose in all other major areas such as agriculture, services and personal loans, fell in the industry sector over the year ending November 2016. Outstanding loans to industry which had risen from Rs 25,419 billion on November 28, 2014 to Rs 26,687 billion on November 27, 2015, fell to Rs 25,793 billion on November 25, 2016.

The decline in lending to industry was focused on the infrastructural sector, with power and telecommunications setting the trend. Outstanding loans to power, which had risen from Rs 5,311 billion in end November 2014 to Rs 5,865 billion at the end of November 2015, fell significantly to Rs 5,253 billion at the end of November 2016. The figures for telecommunications were Rs 863 billion, Rs 907 billion and Rs 849 billion respectively on those three dates.

If despite this, non-food credit growth was positive during 2015-16 (November to November), though reflecting considerable deceleration in growth relative to the previous year, it was largely because of a sharp increase in retail lending, mainly for housing investments and vehicle purchases. Even in financial year 2015-16, retail lending registered double digit growth with housing loans that accounted for 54 percent of the total, increasing by more than 16 percent. Outstanding housing loans also rose from Rs 5,946 billion on November 28, 2014 to Rs 7,052 billion on November 27, 2015, and to Rs 8,153 billion on November 25, 2016. The corresponding figures for vehicle loans were Rs 1,194 billion, Rs 1,379 billion and Rs 1,673 billion respectively.

Thus, clearly, banks are cutting down on their overall lending and restructuring their portfolios to reduce exposure to the infrastructure sector in favour of the retail sector. Both these trends have implications for growth in the immediate future. For a decade and a half now, Indian growth has been fuelled by credit financed investment and consumption spending. So a deceleration in credit expansion implies that the principal stimulus to growth is being dampened, with obvious implications.

So resolving the NPA issue is crucial to keep credit flowing and sustaining growth. Moreover, restructuring debt is also the means to preventing a deleveraging process that could convert a growth slowdown into a crisis. Yet, trapped in its obsession with the fiscal deficit and unwilling to raise additional revenues through taxation, the government is hoping that the banks that were called upon to take on the task of driving growth would address the resulting NPA problem themselves.

Policies have been aimed at supporting the restructuring efforts of the banks. One was to permit private Asset Reconstruction Corporations, which would buy up stressed or loss assets at a large discount, with part payment in cash and the rest in security receipts that would be settled when the loan assets had been restructured and sold. Despite the presence of 16 ARCs by 2016, the pace of acquisition of NPAs by these companies has been slow, because of the huge discounts they demand and their own limited absorption capacities. Faced with this impasse the government has at various points considered the option of setting up a State-backed ARC. But that would require outlays from the budget, with attendant implications for budgetary outlays and the fiscal deficit it is unwilling to accept.

To avoid this, the government seems to be making a final push for privatisation, so as to mobilise resources for this round of NPA write off. That would let off the defaulters, often wilful, who have taken large loans and misused them. But it would also shrink the public sector and place the private sector in charge of much of credit flow in the economy. The private banking sector will cherry pick its clients and finance high-return speculative ventures, depriving industry and infrastructure of financial support. Growth would suffer. Many would be excluded from financial access. And if global experience is evidence, NPAs would only return. But an obsession with fiscal conservatism promoted by finance is pushing the government to adopt this drastic and counterproductive turn in policy.
 

The post Bank Privatisation: The Final Push? appeared first on SabrangIndia.

Image credit:  Sam Panthaky/ AFP

For more than a decade now, the Directorate of Revenue Intelligence has been investigating how a clutch of companies in the Adani Group led by Gautam Adani allegedly evaded taxes and laundered money while trading in cut and polished diamonds and gold jewellery. The Directorate, which is an investigative wing of the Department of Revenue in the Ministry of Finance, has issued a number of show-cause notices to firms in the group alleging evasion of taxes to the tune of roughly Rs 1,000 crore.

While the allegations against the Adani Group have meandered through various tribunals and courts of law, questions are being raised as to whether the Ministry of Finance is deliberately dragging its feet in moving a review petition before the Supreme Court that could safeguard its revenue interests. Four detailed questionnaires were sent by the Economic and Political Weekly to (i) Finance Minister Arun Jaitley and five of his senior officials; (ii) the Minister of State for Commerce and Industry Nirmala Sitharaman and the Director General of Foreign Trade; (iii) Law Minister Ravi Shankar Prasad; and (iv) Adani himself. These questionnaires were e-mailed and also sent by regular post on November 18, 2016. Whereas spokespersons of Adani and the law minister responded, Jaitley, Sitharaman and officials in their respective ministries did not answer the questions more than a month and a half after these were sent to them.

Here is the story in a nutshell. A set of firms in the Adani Group allegedly misused various export incentive schemes through a complex web of front companies located in different parts of the world. These shell companies, which indulged in high-velocity “circular trading” among related corporate entities, were also used to launder money, the Directorate has claimed. All the corporate entities were directly or indirectly controlled by, or associated with, Adani Enterprises Limited, a flagship firm of the Adani Group which was called Adani Exports Limited before 2007. The Directorate has alleged that AEL flagrantly misdeclared the freight on board values of cut and polished diamonds and gold jewellery.

The investigative agency has also claimed that group companies and their associates indulged in circular trading to “artificially” inflate exports and “fraudulently” avail of financial benefits from various export promotion schemes initiated by the Directorate General of Foreign Trade in the Ministry of Commerce and Industry. Such schemes included the Incremental Export Promotion Scheme introduced by the Directorate General in 2003-’04 under which came the Target Plus Scheme introduced in the Foreign Trade Policy 2004-’09. Responding to the EPW’s questionnaire, a spokesperson of the Adani Group denied these allegations. Copies of the various show-cause notices issued by the Directorate to group companies are with the EPW and material from these notices has been drawn for this article.

Misuse alleged

Among the different export promotion schemes initiated by the ministry, a particular scheme sought to provide certain corporate entities exporting goods or services called “trading houses” to avail of benefits that are proportionate to the quantum of exports achieved. Trading houses are ranked on the basis of their total annual exports and the highest exporters are designated “star trading houses.” For 2003-’04, the Directorate General announced a scheme called the Duty Free Credit Entitlement scheme.

Under the scheme, certain benefits were provided to trading houses recognised by the government as star trading houses or “status holders.” Specific exporters were recognised as status holders “on the basis of the FOB/NFE (net foreign exchange) value of goods and services … as well as on the basis of services rendered by the service provider during the preceding three licensing years or the preceding licensing year, at the option of the exporter”. Under the scheme, a status holder would receive financial benefits equal to 10% of the total incremental exports achieved in 2003-’04 over the exports in the previous financial year, that is, 2002-’03, provided the incremental growth was at least 25%.

AEL and its group/associate companies had earlier been exporting various commodities from foodgrain to textiles. The Adani Group had a relatively small export turnover of just over Rs 400 crore in 2002-’03. The Directorate has claimed that after the announcement of the scheme, AEL formed a consortium with different corporate entities to “artificially inflate” its exports to take advantage of the scheme. These five group companies were Hinduja Exports Private Limited, Aditya Corpex Private Limited, Bagadiya Brothers Private Limited, Jayant Agro Organics Limited and Midex Overseas Limited. It is further alleged that in addition to these five Indian companies, AEL directly and indirectly managed and controlled 45 overseas corporate entities.

In 2003-’04, the total export turnover of AEL suddenly jumped more than 11 times, to be precise, by 1,181%. The turnover of Hinduja Exports rose by as much as 160 times (16,624%), Adita Corpex’s by over 150 times (15,819%) while that of Midex Overseas rose more than seven times (765%) in these two years (see Table 1).

Source: https://indiankanoon.org/doc/1510260/

Besides the Duty Free Credit Entitlement scheme, other export promotion schemes that were introduced by the Directorate General included the Target Plus Scheme in September 2004 which offered incentives to status holders varying between 5% and 15% of the incremental growth in the turnover of exports (see Table 2). Initially, studded gold jewellery and cut and polished diamonds were permitted to be included while calculating the FOB figure and therefore, towards claiming incentives under the Target Plus Scheme.

Source: Directorate General of Foreign Trade
 

Directorate General of Foreign Trade notifications

On March 31, 2007, the Directorate General of Foreign Trade issued a show-cause notice pointing out that there had been a sudden and unprecedented increase in the Adani Group’s export turnover of cut and polished diamonds, gold jewellery, rough diamonds and third party exports (all of which could be included at that time in calculating the figure of “incremental” growth of exports for availing benefits from the Directorate General) between 2003-’04 and 2004-’05. According to the notice, the bulk of these exports took place after September 2004 when the Target Plus Scheme was introduced.

The following year, the group’s exports came crashing down. In 2005’-06, the total exports of the Adani Group were barely a third of that achieved in the previous year. Exports of cut and polished diamonds and articles of gold came down sharply. Why? Simply because the benefits were withdrawn after the government realised that the export promotion schemes were being misused. As the ministry became aware of the misuse of the Incremental Export Promotion Scheme, some amendments were made to the Exim policy. In January 2004, the Directorate General issued a number of notifications clarifying that exports of precious metals in any form, including plain jewellery and rough, uncut and semi-polished diamonds and third-party exports would not be permitted for inclusion in calculating the FOB figure.

The amendments were opposed by AEL and other exporters. They contended that the notifications were seeking to withdraw benefits already given to exporters. On February 7, 2004, AEL filed a petition in the Gujarat High Court challenging the validity of the notifications issued on January 28 that year. On July 23, the court [in Adani Exports Limited v Union of India ruled against AEL and others upholding the validity of the notifications. AEL then filed a special leave petition in the Supreme Court. The Directorate General also filed a Special Leave Petition against the order of the high court. Appeals were also filed by other firms and the government in similar cases against the orders of various high courts – such appeals included ones filed by Kanak Exports, the Union of India and the Directorate General challenging an order of the Bombay High Court.

The Exim policy was later further amended (through notifications issued on February 23, 2005 and February 20, 2006) to exclude studded gold jewellery and certain categories of products (diamonds and other precious, semi-precious stones) from the list of items entitled to receive export benefits under the Target Plus Scheme.
 

Supreme Court findings

In October 2015, the Supreme Court upheld the appeals filed by the Directorate General and the Union of India, dismissing the appeals filed by others. It was pointed out that there had been a spectacular rise in the turnover of two firms, Rajesh Exports and Kanak Exports, between 2002’-’03 and 2003-’04 (Table 3).

Source:http://www.advocatekhoj.com/library/judgements/announcement.php?WID=6714

The more than 2,000% rise in exports came entirely in the form of gold coins and jewellery. For Adani Exports, over 80% of its export turnover came from diamonds and supplies from status holders. In other words, the Adani Group would not have met the minimum turnover and growth criteria that had been laid down in the Exim policy and the amended Duty Free Credit Entitlement scheme (Table 4).

Source:http://www.advocatekhoj.com/library/judgements/announcement.php?WID=6714

It is evident from Figure 1 that the export turnover of AEL rose sharply from Rs 377 crore in 2002-’03 to Rs 4,657 crore the following year and further to Rs 10,808 crore in 2004-’05. This sudden spurt in turnover occurred during the period AEL availed of benefits from the Duty Free Credit Entitlement scheme and the Target Plus Scheme. Subsequently, when in 2004 the Directorate General issued notifications clarifying that the particular items would not be eligible for export incentives under the Duty Free Credit Entitlement scheme (in 2004) and the Target Plus Scheme (in 2005 and 2006), AEL’s export turnover collapsed. The Supreme Court pertinently observed that there was a 1,135% surge in AEL’s exports during 2003-’04, whereas the company’s exports had declined in the preceding six years.

The division bench of the apex court comprising Justices AK Sikri and Rohinton F Nariman used very harsh language to highlight how the firms “misused” benefits by “fraudulently” inflating export turnover, citing “conclusive” evidence of how AEL increased its exports of rough diamonds despite the fact that India is not a rough diamond producing country. The order reads,

  “The same set of diamonds were rotating and these never entered the Indian domestic territory or to the end consumers abroad. The value of such exports in the past two years may exceed 15,000 crore … Many of these exporters exported to their own counterparts in Dubai and Sharjah. The jewellery attracted a 5% import duty at Dubai, the consignments were declared as jewellery in India but were declared as scrap in Dubai to avoid the import duty.”   
— (DGFT and Another vs Kanak Exports and Another, 2015)

Setting aside the direction of the Bombay High Court granting the exporters benefits of incentive schemes that had accrued in the past, the Supreme Court bench concluded,

It was pernicious and blatant misuse of the provisions of the Scheme and periscopic viewing thereof establishes the same. Thus, the impugned decision reflected in the notifications dated April 21 and 23, 2004, did not take away any vested right of these exporters and amendments were necessitated by over-whelming public interest/considerations to prevent the misuse of the Scheme. Therefore, we are of the opinion that even when (the) impugned Notification issued under Section 5 could not be retrospective in nature, such retrospectivity has not deprived the writ petitioners/ exporters of their right inasmuch as no right had accrued in favour of such persons under the scheme. This Court, or for that matter the High Court in exercise of its writ jurisdiction, cannot come to the aid of such petitioners/exporters who, without making actual exports, play with the provisions of the Scheme and try to take undue advantage thereof.
 

Directorate of Revenue Intelligence investigations

The network of the Adani Group is worth mapping. Adani Enterprises Limited (which was earlier Adani Exports Limited or AEL) is a public limited company in which Gautam Adani and his brothers Rajesh Adani and Vasant Adani are directors. With Samir Vora (Gautam Adani’s brother-in-law) at the helm of affairs, Adita Corpex and Hinduja Exports (partnership firms that were taken over by the Adani Group) played the role of the proverbial knights on the chessboard while Midex Overseas, Jayant Agro Organics and Bagadiya Brothers were the pawns. Background checks on these pawns conducted by the Directorate of Revenue Intelligence indicate that their main activities used to be exports of molasses, soybean, castor oil, rice and other agricultural products.

While Hinduja Exports entered into a memorandum of understanding with Jayant Agro Organics and Bagadiya Brothers, Adita Corpex signed one with Midex Overseas. The memorandum of understanding stated that the entire export-oriented operations in cut and polished diamonds was to be handled by Hinduja Exports and Adita Corpex in order to achieve the required increment in export turnover, thus enabling the Adani Group to obtain benefits under the Target Plus Scheme. Pursuant to these memorandum of understanding, Deven Mehta (director, Hinduja Exports) was appointed as the authorised signatory for Bagadiya Brothers and Jayant Agro Organics while Saurin Shah and Vishwas Shah (employees of AEL) were appointed as signatories for Midex Overseas. The alleged “collusion” among the firms and their representatives resulted in accrual of benefits to Hinduja Exports and Adita Corptex under the Target Plus Scheme and to the signatories of AEL who allegedly gained between 2% and 2.5 % of the FOB value in an unauthorised manner, the Directorate has claimed in its show-cause notice.

Source: Show-cause notice issued by the Directorate of Revenue Intelligence

The Directorate has alleged that the import and export operations of all six companies were handled by Vora. The Directorate went on to claim that total exports of cut and polished diamonds by the Indian companies in the Adani Group in 2004-’05 were worth $1,643.02 million, out of which goods worth $1,314.19 million (or 79.98% of the total) were exported to eight specific companies situated in the United Arab Emirates, Hong Kong or Singapore. Similarly, during 2004-’05, out of the total imports worth $1,641.68 million, imports worth $1,304.13 million (79.44%) were from only seven companies in the countries mentioned. Similar patterns emerged for 2005-’06 as well. Two Hong Kong-based companies, Kwality Diamonds and Seven Stars and four UAE-based companies, Excel Global, Jewel Trade, Crown Diamonds and KVK Diamonds, acted as suppliers and buyers of the cut and polished diamonds to and from AEL and its group companies. In addition, eight companies – Wingate Trading, Sphere Trading, Global Enterprises, Top Rich (all in Hong Kong), Planica Exports Private Limited, Emperor Exports Private Limited, Gracious Exports Private Limited and Orchid Overseas Private Limited (in Singapore) – were all incorporated after September 2004 after the introduction of the Target Plus Scheme. Wingate Trading, Sphere Trading, Top Rich and PNJ Trading stopped their business activities in 2005. This, according to the Directorate, suggests a clear link between the way in which trading malpractices took place and the timing of the Directorate General notifications.

Further, the proprietor of three companies, namely, Wingate Trading, Sphere Trading and PNJ Trading, was one Nishaben Vijay Gandhi. While PNJ Trading exported cut and polished diamonds to Indian firms from Hong Kong, Wingate and Sphere imported cut and polished diamonds from the same set of Indian companies. These transactions took place among the firms at profit margins varying between 5% and 10% and would return full circle at a remarkable velocity. According to the Directorate, goods imported were often exported out of India on the same day. Theoretically, the same goods could have been exported more than 100 times in a year and in terms of the various slabs of incentives under the Target Plus Scheme, an unscrupulous exporter could have earned a phenomenal 1,500 for every 100 invested, the Directorate has calculated.

The story was no different in Singapore. There was a common set of five directors shared across AEL’s trading partners. Email messages reproduced in the Directorate’s show-cause notice that were retrieved by the Directorate of Forensic Sciences indicated that AEL controlled and managed its trading partners in Dubai, Hong Kong and Singapore.
 

Circular trading of studded gold jewellery

In 2009, the Directorate issued a fresh set of two show-cause notices alleging that AEL and its associate companies, Hinduja Exports, Adita Corpex and Midex Overseas, that had allegedly availed of extraordinary benefits under the Target Plus Scheme, also indulged in fraudulent “circular trading” by importing gold bars of 995 purity from the UAE and then exporting the goods in the form of crude studded gold jewellery purity back to the UAE. The jewellery was subsequently melted down and imported back to India in the form of gold bars to boost the group’s export turnover. What is remarkable is the rate at which these activities took place: between September 2004 and February 2005, the firms in the Adani Group exported over 59,500 kgs of what is supposed to be studded jewellery valued at over Rs 3,843 crore ($861.40 million).

The entire trading operations involving first, import of gold jewellery into the UAE and export of gold bars from the UAE; second, receipt of funds for the exports into accounts of dummy exporters of the gold bars; and finally, payments of funds from the accounts of dummy importers of studded gold jewellery, was controlled and managed by the employees of Adani Global FZE, Dubai, which is a subsidiary of Adani Exports and GA International. Adani Global FZE, Dubai is a company owned and managed by Vinod Shantilal Shah, also known as Vinod Shantilal Adani, the older brother of Gautam Adani.

Interestingly, these export orders comprised gold bangles weighing anywhere between 100g and 240g and pendants weighing over 70g each. Studded jewellery of such dimensions, using gold with 995 purity, is rare in the jewellery business due to the inability of pure gold to hold precious stones. This has been argued by the Directorate. The lengths of the production cycle and the export cycle of this jewellery were unbelievably short: more than 100 kg of the goods were manufactured within two to three days of the receipt of gold by the workers and the goods were then promptly exported. In particular instances, the export consignments each weighed as much as 500 kg, which is reportedly unusual. Moreover, the Indian firms charged an exorbitant 7% as “making charges” to artificially inflate the value of the goods exported, the Directorate has alleged.

The investigation also unearthed that Adani Global FZE had insured itself against the risk of storage and transport of the jewellery and gold bars. This insurance policy was bought from Oman Insurance Company, Dubai. The fact that Adani Global FZE obtained an insurance policy covering not only itself but other importers and exporters in these operations, which included the refinery where the gold scrap was melted down and converted into gold bars, speaks of the “dubious” nature of these transactions, the Directorate has alleged. At the time when Adani Global FZE bought the insurance policy, it had neither imported any gold jewellery nor exported gold bars. Further, after the Directorate General issued notifications amending the Exim policy in February 2005, the companies abruptly stopped exporting studded gold jewellery. The value of export incentives obtained by the Adani Group companies in this specific instance was more than Rs 575 crore ($130.68 million).
 

Duty Free Credit Entitlement scheme

Permission for setting up private or public bonded warehouses was obtained by AEL from the customs department in July 2003 after the introduction of the Incremental Promotion Scheme. This, in effect, meant that goods imported, stored, manipulated and exported from these warehouses would be exempt from payment of customs duty. In accordance with the Target Plus Scheme, AEL imported cut and polished diamonds and re-exported the same after value addition of 5%. This has been shown in the company’s books of accounts. The Adani Group firms obtained Duty Free Credit Entitlement certificates from the Directorate General and utilised these for importing gold and silver without paying duty, that is, by claiming exemption from payment of duty under the Incremental Export Promotion Scheme. In its application to the Directorate General, AEL also acknowledged that it did not take into account the re-export of imported goods while computing the value of exports.

The Directorate notice issued seeks to establish that exports of cut and polished diamonds made by AEL were squarely covered as re-export of imported cut and polished diamonds. Further, these imported gold bars, after conversion into 100g bars, were sold in the open market. Hence, the gold and silver bars imported without payment of duty under Duty Free Credit Entitlement scheme cannot be accounted as inputs for the cut and polished diamonds exported by AEL and would be liable for payment of customs duty. The Directorate has alleged that this was done intentionally in circumvention of the July 2004 order of the Gujarat High Court prohibiting the inclusion of gold exports in the Duty Free Credit Entitlement. This order of the Gujarat High Court was upheld by the Supreme Court in the case of Kanak Exports. The Directorate notice proposed confiscation of the seized 250 gold bars (of 1 kg each) imported by AEL and confiscation of around 25,000 kg of gold bars and 31,000 kg of silver bars together valued at more than Rs 4,000 crore.
 

Artificial value addition

There are a few thousand instances of circular trading that have been detailed in the Directorate’s notices. The firms claimed value addition of 5%-10% in their official books of account although all that was done was to sort, sieve and clean the diamonds by boiling them in water. Such activities do not involve great technical expertise and, if the Directorate is to be believed, raise doubts about the genuineness of the transactions that have been recorded. The imports and exports of diamonds took place in small dingy rooms measuring 10ft by 12ft inside the bonded warehouse where manufacturing activities are disallowed, the Directorate has alleged.

After the Directorate issued show-cause notices, in an adjudication order issued in January 2013, the commissioner of customs, import (Mumbai) held that:
(i) No processing was carried out by any of the six notices to achieve value addition of 5%-10%;
(ii) The notices have not shown how simple processes of boiling, sieving and assortment, if carried out, can result in value addition of 5%-10%;
(iii) The FOB value declared in the shipping bills by simply adding 5%-10% of the CIF (cost, insurance and freight) value is artificial and hence, the export value declared should be rejected under Section 14 of the Customs Act, 1962.

The commissioner then imposed a penalty of Rs 25 crore on AEL and penalties of Rs 2 crore each on the five other companies. Additionally, it imposed heavy penalties on the directors of all six companies, including Gautam Adani’s brother Rajesh Adani and brother-in-law Samir Vora. The commissioner upheld the charges made in the Directorate’s notices that tax benefits to the tune of Rs 1,000 crore had been fraudulently obtained by the Adani Group companies.

To recapitulate, the Directorate had from 2007 onwards alleged that the companies had misdeclared the FOB value of export goods in contravention of the Foreign Trade (Development and Regulation) Act, 1992 and Foreign Trade (Regulation) Rules, 1993; that the group through its directors had entered into a “conspiracy” with people and entities based in Singapore, Dubai and Hong Kong to undertake “dubious” imports and exports of diamonds to take undue benefits of the Target Plus Scheme; entered into MoUs with group companies for claiming incremental exports; misdeclared value addition of 5%-10% by assortment, boiling, sieving and repacking without any manufacturing/processing or change in the form of the cut and polished diamonds; and failed to declare details of commission payable in shipping bills. It was estimated that benefits worth Rs 679.62 crore were claimed by AEL and its associate companies in 2004-’05 and an additional Rs 218.16 crore were claimed in 2005-’06.
 

The reversal

A development then took place that shocked the Directorate. The order of the commissioner of customs was set aside by the Mumbai bench of the Customs, Excise and Service Tax Appellate Tribunal, Western Zone. By an order dated April 9, 2015, which was issued more than four months later on August 26 that year, tribunal members Anil Choudhary and PS Pruthi summarily dropped all the charges against the Adani Group. The tribunal chose to accept the FOB value declared by the companies and disagreed with the Directorate’s claim that there had been circular trading. The tribunal disagreed with the commissioner that “no process” had been carried out in the bonded warehouse since the diamonds were sorted, sieved and boiled. It disagreed with the commissioner that these “processes” could not have added value to the extent of 5%. The tribunal was of the view that the “transaction values” of the cut and polished diamonds were “genuine” and that foreign exchange had been “fully realised” through the sales proceeds. The allegedly fraudulent intentions with which the value of exports were misdeclared and artificially inflated as well as the claims of circular trading were all effectively ignored by the tribunal.

The tribunal ignored the evidence that the Directorate had adduced to its show-cause notices to indicate circular trading. One such piece of evidence was an email exchange between different employees of group companies, including Adani Global. The first names of these employees were Asha, Mary, Rakesh, Tejal and another employee was SM Shah. According to the Directorate, these email exchanges indicate that the same set of diamonds would be imported, exported, imported again and re-exported from and to India, Dubai and Singapore in a cyclical manner.

The tribunal also chose to ignore a letter dated May 26, 2015, written by the Additional Directorate General of Foreign Trade to the joint secretary (drawback), Central Board of Excise and Customs in the Finance Ministry which stated,

“There are cases of circular trading and many other types of mischief reported under the Target Plus Scheme … Such petitioners do not become eligible for such shipping bill claims as per the judgment of the Supreme Court. So, any claims arising on account of such shipping bills may be disallowed. Therefore, (the) Department of Revenue and (the) DRI [Directorate of Revenue Intelligence] are requested to give the complete list of exporters along with details of Shipping Bills who have misused under both the schemes. (the Duty Free Credit Entitlement and/or the Target Plus Scheme.)  
 

Officials in the Income Tax Department and the Enforcement Directorate (who spoke to the lead author of this article on the condition that they would not be identified) said that no investigations had been conducted nor action initiated by their respective departments. A senior customs officer based in Mundra port (through which many of the consignments of diamonds were imported and exported and which is part of the Adani Group) said a number of disputes relating to alleged misuse of export benefits were pending with the Directorate General. “The Adani cases are among the many hundred revenue-sensitive matters on which DGFT [Directorate General of Foreign Trade] has not taken a decision and this is because there is no audit of, or accountability in, the proceedings of the DGFT,” said this person.

A senior official of Directorate General, who too spoke to the lead author of this article on the condition of anonymity, explained,

 “The best course of action will be to ensure that no benefits are given under the TPS [Target Plus Scheme] and the benefits that have already been availed of under the DFCE [Duty Free Credit Entitlement] scheme (for exports in 2003-’04) be declared void ab initio. Since the exports of CPD [cut and polished diamonds] have been held to be fraudulent by the Supreme Court in the Kank Exports case, the benefits under the DFCE already issued to AEL should also be disentitled. It is unfortunate that there are no clear guidelines for expeditious action in such cases of fraud.”  
 

A systemic problem

On March 31, 2016, the Reserve Bank of India relaxed the rules applicable to importers of rough cut and polished diamonds. It permitted banks to approve a “clean credit” facility extended by foreign suppliers to Indian importers of cut and polished diamonds beyond the stipulated 180-day period. Clean credit refers to the credit facility extended by foreign suppliers to Indian importers without imposing the requirement of the need to furnish a letter of credit or a fixed deposit to serve as an underlying guarantee.

While it is contended that this move is intended to ease operational difficulties faced by importers, experts monitoring the diamonds trade suggest that this could be an invitation to fresh trouble. One such person said that these provisions can be easily abused by importers to launder money, that it is quite easy to create an offshore corporate entity that could import goods from an Indian exporter and delay remittances, or worse still, default on payment. This expert apprehended that such malpractices could undermine the financial positions of banks. On one side, the trading firm’s books of accounts would show higher receivables as a part of its balance sheet which may serve as a premise to obtain more credit from Indian banks even as the unscrupulous trader would by then have encashed the proceeds from the sale of the diamonds in, say, Hong Kong, to move the assets out of India.

The systemic nature of such fraud is worth noting. A report by the Financial Action Task Force, released in October 2013, titled “Money Laundering and Terrorist Financing through Trade In Diamonds” stated that India, which accounts for more than 90% of the total business of cut and polished diamonds in the world, has seen instances of companies grossly overvaluing the goods they exported. The report explained how such activities are conducted and operationalised to transfer sums of foreign exchange outside India, giving examples of diamonds round-tripping back to India at inflated prices.

In its judgment in the Kanak Exports case, the Supreme Court highlighted another instance of mis-utilisation of export incentives relating to Reliance Industries Limited and its group company IPCL (formerly India Petrochemicals Corporation Limited). The Court said that RIL and IPCL “manipulated” export turnover to maximise export benefit entitlements under the Duty Free Credit Entitlement scheme and the Target Plus Scheme. It held that IPCL had artificially inflated its export performance in 2003–04 and was hence not eligible for benefits under the Duty Free Credit Entitlement scheme. The Court observed that goods worth Rs 2,127.18 crore manufactured by RIL were exported in the name of its group company IPCL to claim extra benefits under the Duty Free Credit Entitlement scheme. A Directorate report had earlier stated that RIL lowered its export turnover for 2003-’04 by a similar amount to show that it had achieved a rate of growth of exports above 100% (between 2003-’04 and 2004-’0P) to claim Target Plus Scheme benefits at the rate of 15%. The Supreme Court upheld the Directorate’s contention in this instance.
 

Conclusions

The Directorate filed an appeal against the tribunal order in the Supreme Court which was disposed of on April 12, 2016. The Ministry of Finance now has to file a review petition against this decision. The question that remains unanswered: what has dissuaded the ministry from filing this review petition even though more than nine months have gone by?

According to a Delhi-based lawyer familiar with the case who (like the others) spoke to EPW on condition of anonymity, “The entire argument of the Directorate is premised on a Directorate General notification which was upheld by the Supreme Court in 2015 in the Kanak Exports judgment.” The advocate added that this case is of great significance since it is first relating to circular trading which has reached the doors of the country’s apex court. He said that if the Revenue Department fails to convince the Supreme Court about its case against the Adani Group through its review petition, the “consequences could well be disastrous for the government as this could affect all circular trading cases that are in the pipeline”.

A questionnaire was sent by EPW to Ravi Shankar Prasad, Union Minister of Law and Justice, seeking to enquire if his ministry would recommend a review of the Supreme Court’s decision on the Directorate’s appeal against the tribunal order. A response came from Saurabh Kumar, Additional Private Secretary to the minister, who said the questions should be sent to the Finance Ministry and the MCI.

As already stated, a detailed questionnaire sent on November 18, 2016, to Finance Minister Arun Jaitley, copies of which were marked to the revenue secretary, the chairman, Central Board of Excise and Customs, the chairman, Central Board of Direct Taxes, the director, Enforcement Directorate and the Director General, Directorate of Revenue Intelligence, got no responses. On the same day, another questionnaire was sent to Minister of State for Industry and Commerce Nirmala Sitharaman and the director general, Foreign Trade, which also went unanswered.

In response to the EPW questionnaire, Jatin Jalundhwala, Chief Legal Officer for the Adani Group stated that the tribunal had dealt with all the allegations made by the Directorate, including those relating to circular trading and the relationships with overseas buyers and suppliers, and had set these aside. He stated that the tribunal had held that all the exports and imports of cut and polished diamonds by the Adani Group were “genuine” and “thus, (the) FOB value of CPD [cut and polished diamonds] exported cannot be re-determined.” Jalundhwala added that the Supreme Court by dismissing the appeal filed by the Customs Department also “affirmed the validity/genuineness of transactions of imports and exports …”

Reference: Financial Action Task Force (2013): “Money Laundering and Terrorist Financing through Trade in Diamonds,” FATF Report, Oct.

This article was first published on Scroll.in

The post One question finance ministry needs to answer on Rs 1,000-crore tax evasion charge against Adani appeared first on SabrangIndia.

"I have made no cash deposit in my account since November 8, 2016.

I see no reason to offer any special explanation for the same [for making the deposit now]. I normally like and wait for the queues to end. I was assured by the Prime Minister, the Finance Minister and the RBI that there was no need to rush to the banks and that I had till  December 30 for making any deposit. I believed them."

"… 8 नवंबर 2016 से आज तक मैंनें कोई कैश अपने अकाउंट में जमा नहीं करवाया है।

मुझे कोई कारण समझ में नहीं आता कि मैं इसके [बैंक में देरी से डिपोज़िट करवाने] लिए विशेष स्पष्टीकरण क्यों दूँ। आमतौर पर मैं क़तार ख़त्म होने का इंतज़ार करना पसंद करता हूँ। प्रधानमंत्री, वित्तमंत्री और आरबीआई ने मुझे आश्वासन दिया था कि बैंकों की ओर भागने की ज़रूरत नहीं है, डिपॉजिट के लिए मेरे पास 30 दिसंबर तक का समय रहेगा। मैंनें उनका भरोसा किया।"
 

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