Under-invoiced exports and over-invoiced imports, with the difference stashed away abroad in collusion with allied agents, were once a classic way for resident Indians to jump capital controls that kept them from sending wealth overseas.
Once India’s economy opened up, round-tripping games began, with local money sneaking out only to return, often aimed at exploiting a special edge foreign investors had. Closing incentives for this has been a reform goal, but at times, the vigil must heighten.
This week, non-residents had a ‘wow’ moment, as a sample of social media suggests, upon learning how they could help India hoover up dollars.
Roughly, since $1 million can be leveraged up to nine times—via a loop of loans availed against it—for a higher-rate deposit of $10 million with an Indian bank, they could get enviable double-digit annual returns at low risk (sharp US rate hikes can squash rate arbitrage).
Banks opened this window after the Reserve Bank of India took on their risk of a weaker rupee by the time dollar deposits must be repaid. But with low-risk returns in India so meagre, this opening may also tempt round-trippers to get creative with routes. Such sneaky efforts are best foiled.