ED seizes house of ex MD IFFCO in Rs 685 crore money laundering case in ‘Fertiliser Import Scam’

It is the tip of the iceberg in India’s largest Fertiliser Import Scam. 

The Excise Department has attached another house of ex IFFCO MD Udai Shankar Awasthi in the plush South Delhi Hauz Khas Enclave on 3d June. With this the total attached assets seized including Rs 37 crore in the Swiss Bank goes upto Rs 86 crores.  The laundered amount currently under investigation is Rs 685 crores. As per the ED this was the  illegal payment made as commissions by foreign suppliers of fertilisers to the Dubai based sons of US Awasthi during the 2017-2014 period.

           

But this is the tip of the iceberg in India’s largest Fertiliser Import Scam that syphoned out thousands of crores as fertiliser subsidy each year funded by the  Indian taxpayer from 2007 to 2014. The key beneficiaries of the scam were not IFFCO’s MD US Awasthi or Indian Potash Ltd’s MD PS Gehlot, both under detention and being interrogated by the ED. These two 70 plus gentlemen were the key players who conducted the scam. The chief beneficiaries were the political masters during the UPA II  and the bureaucrats who helped IPL import bypassing state run importers MMTC and STC . The key beneficiaries were the then fertiliser minister the late Ram Vilas Paswan, the then secretary Fertiliser, the Finance Minister P.Chidambaram and the top bosses of the UPA . The probe into the scam that has  now began belatedly will hopefully expand its horizon in the coming months to snare the key beneficiaries. 

                                              

                                         

In October 2020, my book The Inside Story of Indian Banking was published by Rupa highlighting India’s biggest fertiliser import scam that lasted for a decade and amounted to anything between Rs 50,000 crore to Rs 100,000 crore. Use the Read Inside facility available in Amazon ( page 26 onwards) to know the full details of the scam and how it made India which was self sufficient in fertilisers in 2002 the world’s biggest importer in 2007. In July 2021 the ED filed cases against Awasthi, Gehlot and several others and investigations began unravelling the first layer of the multilayer scam. Let me assure you - This is just the beginning ……much more is in store that will be bared in the months to come.  Keep watching.

Reduce Regulatory Risk for Indian Business - Lower Import Duties, But Don’t Tax Steel Exports

    Why Restricting Wheat Exports to Curb Inflation is OK , But Taxing Steel Exports is Not 

The three month old Russia Ukraine war and the US sanctions thereafter  has disrupted global supply lines. It has raised the price of crude oil above the $100 per barrel mark since the last week of February 2022 ,  - the first time since 2014. It has also created uncertainty in the financial markets and spiked shipping rates, food and fertiliser  prices and the commodity markets resulting in high inflation and fear psychosis. 

                           

                                                           T.V. Narendran  CEO Tata Steel 

RBI Governor Das had no way to see it coming and take steps to manage inflation, nor can the Union Govt be blamed for opening wheat exports only to clamp down on it the next day. The GOI has however agreed to undertake selective wheat exports on requests from needy nations that may actually help the Government to reduce its procurement at MSP prices for the PDS scheme and manage its fiscal deficit. 

Whereas controlling wheat and sugar exports to curb domestic food inflation was a positive step, the same cannot be said of the 15% export tax levied on steel  to cool domestic prices. T. V. Narendran, chief executive of Tata Steel India's biggest steelmaker said that such decisions could affect the steel making capacity output in India and long term goals of businesses.  Looking at the fact that Tata Steel has global experience and plans  to double its steel making capacity to 40 million tonnes per annum, the Government should not increase the regulatory risk for domestic businesses. They can very well reduce steel prices for the construction sector by permitting selective imports at lower import duties. Already UAE and Singapore is weaning away Indian tech startups who are facing regulatory challenges from GOI. Other nations could very well ask Tata Steels with an immaculate reputation to invest abroad where the tax regime is stable.

                           

India has lost many businesses and tech startups due to its ad hoc taxation policies in the past. The right way of dealing with rising domestic steel prices is to lower import duties of competing products temporarily. When import duties are lowered or raised the regulatory risk is transferred to the foreign manufacturer. Taxing steel exports is counter productive as the risk is borne by the Indian manufacturer. That harms domestic industrial growth and hurts Make in India. The decision needs to be reversed before permanent damage is done to export competitiveness. 

          

Over 2700 foreign companies have closed operations in India since 2014 confirmed Mr Piyush Goyal in the Parliament last November. Businesses need regulatory stability and India has a very poor record due to which Indian businessmen move abroad. The Golden visa scheme of UAE is one such scheme that has been weaning Indian unicorns promising minimum regulatory interference.  “One of the key things Dubai has been successful in doing over the last 12 months is attracting the attention of the tech community from India. We have seen a huge appetite from that community across different stages- from series A, and all the way to a unicorn status. Founders and talent are considering Dubai as a tech hub. Talented people are sensitive and precarious. Keeping them happy is also part of the solution and not only the money”  says UAE Tourism Director Yousuf Lootah to ET  It is high time that India’s bureaucracy and political bosses also try to keep talented people happy and create conditions for long term growth.  

Sinking Rupee and Rising Current Account Deficits from Expendable Imports

Curb non-essential imports to reduce trade deficit and falling forex reserves.

JUNE  2022 UPDATE 

The  Rupee continued its downward trend. The foreign exchange reserves managed to gain some ground but  non-essential imports continued to rise for May the second month of the current financial year. The trade deficit during the first two months of this fiscal year doubled to $44.69 billion as against a moderate  $21.82 billion during the same period a year ago. 

And the culprit was not oil. 

Oil imports rose by just 2% , as volumes slumped with low demand in May, against volatile oil prices. 

It  was non essential imports that spiralled, as the trade deficit rose to $24.29 billion during May  As resident Indians pulled out money from the stock market that kept plunging and from real estate that is already in shambles,  gold was the only safe haven to invest in. Gold imports jumped ten fold to  $6billion as against May last year which was pretty unusual.  The statisticians failed to read and check the trends. The imports of coal, coke and pet – coke briquettes also jumped fourfold ( cheap fossil fuel substitutes) which is ominous for pollution in the coming months. Other non essential imports rose by 40% during the month.  We had seen this trend even in April -Nov 21 trade balance gap shared in graph below.  

Also the ECB debt that accounts for around 37% of the foreign exchange borrowings  have been rising which could also create problems for the Rupee. As per RBI data ECBs approvals had risen to $38.2 billion from $34.8 billion in FY21, so more Rupee shocks could be round the corner. 

PUBLISHED IN MAY 2022 

The Russia Ukraine war that disrupts food and energy supply chains may destroy the fiscal stability of many nations. For the first time in over a year, India’s  foreign exchange reserves fell below $600 billion.  India needs to clamp down on non-essential imports just because it has to buy oil at high prices. And most of the non-essential imports comes from China and Switzerland ( see graph below) . Also it has to repay short term debts of $256 billion maturing in  the next twelve months.  Though the  situation is not grim it needs to be managed astutely especially because the Rupee has been continuously under pressure as the Federal Reserve tightens its monetary policy to control rising domestic inflation. 

In Ten Years Rupee Plunged By 80% 

Let us not try to look at the Rupees woes during the Russia Ukraine conflict of past two months. Instead let us gauge its journey over a decade . The Rupee started sliding soon after Manmohan Singh took office and moved faster south during the UPA II. In 2012 the UPA decided to enter the debt markets instead of opting for fiscal discipline to curb the rising deficit. You could see an oncoming currency crisis in late 2011. At that time you could exchange Rupees 46 for a US Dollar. I wrote a piece for The Economic Times on what could happen ‘ Don’t Push the Rupee to the Bin’ 

But the Manmohan Singh Govt kept the import floodgates open reducing duty on imported olive oil to luxury cars and Chinese power stations starving local equipment suppliers from BHEL to NGEF to Kirloskar.  By the summer of 2013 the Rupee had crashed past the Rs 60 to a Dollar psychological barrier as the current account deficit financed by external debt soared. Easy money had arrived from China pushing the Trade Deficit north every other month. The RBI data from 2004 showed clearly how the forex debt had jumped three fold during the ten year rule of the UPA leading to the spectacular fall of the Rupee by the summer of 2013.

How India Fell Into the Chinese Tech Trap 

But worse was to happen after the Modi Government came to power. The Chinese phone companies and technology companies swamped the Indian market and now have a stranglehold with over 70% market share. They used the Modi Governments interest in making India a manufacturing hub for electronics to swamp the market. They pushed in half a dozen Chinese companies like Xiaomi, Oppo, Vivo, and their contract manufacturers setting up base in Maharashtra, Telangana, Andhra Pradesh, Karnataka, Uttar Pradesh and elsewhere with easy credit to push small Indian brands like Micromax and large imported brands like Nokia and Apple into insignificance.

 Broadly cheap items like chargers, phone covers and small components are manufactured in India while the technology products like PCBs, memory devices, storage units, processors, are imported against easy credit. Private debt to Chinese phone makers ballooned as did imports. Once the hardware was in place they supplied the compatible software  without any issues. Here is a brief video from FBI that highlights China’s plan for dominating the tech world.

Chinese Phones Swamp Indian Market Through Easy Credit

In 2015 Indian smartphones had 20% of the domestic market. By 2021 that had dropped to 1% as the Chinese smartphones usurped the entire market while India’s policy makers looked on without clue. Easy credit free flowing bribes and money laundering pushed them to the top of the Indian market in just 5 years.  Even if GOI did not fall into China’s easy credit trap like Sri Lanka or Pakistan, the private sector phone assemblers did. The Indian market was soon flooded with expensive Chinese smartphones - a nonessential luxury item.  China’s market leader Xiaomi was recently caught in a Rs 5550 crore money laundering and royalty fraud scam that could be the tip of the iceberg. More skeletons could tumble out from Chinese phone makers if the same is investigated thoroughly.  The Chinese are ready to lose some money in operations as long as they can make the Indian market dependent on Chinese technology.  In short India was a perfect case study of China’s Silk Road Digital Policy white paper 2015 that it prepared for technology domination of 65 nations. The Rupee has meanwhile slipped to Rs 79 to a dollar making oil and gas imports more expensive and pushing down our forex reserves significantly.