Round tripping of the funds becoming rampant in India

According to the media reports in India, Dhananjaya Reddy, an engineering graduate from Bengaluru, was arrested for floating shell companies and obtaining loans from banks. Reddy submitted forged documents of several immovable properties as third-party collateral to the banks and got loans sanctioned in the name of various shell companies.

Reddy has three money laundering cases registered against him. He routed the money to shell companies abroad and did “round tripping of funds” to evade taxes. However this is just the tip of the iceberg.

Round tripping is a huge problem before the Indian Economy. There are bigger organisations which are indulging into the round tripping. Typically this is similar phenomenon to Reverse Hawala, where the money sent out of the country due to the government policies, inflation or the currency devaluations starts flowing back to the country.

What is Round Tripping

FDI inflow to some economies has increased significantly in the past several years. A share of the total FDI inflow to these economies is expected to be of the nature of round tripping funds, given that in those economies, investment incentives are available to foreign investors but not domestic ones. In addition to tax and fiscal advantages that are provided to foreign investors, there are other incentives for round tripping, such as safety and risk management of capital, accessing better financial services, etc

There is a small difference between the reverse hawala and round tripping. Typically, round tripping is the return of the money flowing back through the business channels, whereas reverse hawala is sent out through the informal channels.