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Editor's ChoicePak uses hawala route to pump billions into India
India received at least $14.36 billion from Pakistan in the form of illegal remittances, through hawala channels, in the last three years, according to estimates of the World Bank. Intelligence agencies fear that a large part of this money is being used to finance terrorists, separatists and different radical movements in India. A major chunk of this money was transferred through unrecorded and unmonitored channels including informal trade and cross-border smuggling. India and Pakistan have not had any framework to carry out direct financial transactions ever since the 1965 war. According to Reserve Bank of India figures, a few thousand Indians send a little over $1 million to India every year as remittances through official channels that include Indian missions based in Pakistan and through third countries. Reliable sources in the RBI told this newspaper that since 2007, at least $3-4 billion have entered India every year directly, through informal trade, which is not part of the official transaction records. Officials warned that terrorist organisations in Pakistan are sending money to their units in India using these informal trade routes.
Informal trade includes re-routing the funds through a third country (UAE, etc) and cross-border smuggling. According to RBI, illegal cross-border trade is the prime reason for the increase in the illicit inflow into the country. This infiltration, according to informed sources, is rampant in the areas abutting the India-Pakistan border in Punjab and Gujarat.
According to World Bank’s analytical estimates, in its report titled “Migration and Remittances Factbook 2016”, “India was the largest remittance receiving country, with an estimated $72 billion in 2015, followed by China ($64 billion) and the Philippines ($30 billion).” The report says that those living in Pakistan sent at least $4.9 billion to India as direct remittances in 2015. The Bilateral Remittance Matrix employed for the study put the inflow in 2014 to the tune of at least $4.79 billion and $4.67 in 2013. The World Bank says that theirs is “an estimate based on logical assumptions”. 
According to the report, India received the highest remittance in 2015 from UAE at $13.2 billion, $11.5 billion from the US and $11 billion from Saudi Arabia. Remittances from Pakistan to India were the fourth largest and stood 14th on the list of highest remittance between two countries in the world.
“It is very difficult to track these remittances to India (from Pakistan). However, these estimates are decided after conducting a diligent and exhaustive study of money flow through international borders. The authorities don’t receive data of day to day transactions and transfers between traders. Furthermore, a large chunk of the money goes through the borders via smuggling and illicit alternative remittance channels (like hawala),” Vijay Chandrasekar, economist at the World Bank, told this newspaper.
“Now, there are obviously no NRIs living in Pakistan. The question is why such a large amount of money is entering India from Pakistan in the form of remittances. These figures are not part of switch trading transactions. These are direct remittances. A large share comes through shadow trading,” he added.
These funds, according to Enforcement Directorate (ED) officials, are being used to fund terrorist activities and push separatist and radicalisation movements in states like Punjab, Jammu and Kashmir, and in Maoist-affected states, among others. ED officials say that the illegal movement is currently heightened along the India-Pakistan border near Bhukkiwala, Singhwala, Rantan and Ullake villages in Punjab.
“The hawala lobby has, for years now, prevented the implementation of any framework for clear and transparent financial transactions between India and Pakistan. A Memorandum of Understanding was signed between the Reserve Bank of India and the State Bank of Pakistan in 2005 to set up bank branches in each other’s country to facilitate fair trade transactions, but that MOU has stayed in cold storage since then,” a top ED official told this newspaper:
“According to our intelligence, at least $3-4 billion has been entering India through hawala channels every year since 2007. It can be more. It’s very difficult to track this money, although we do the best we can. The World Bank estimates, although based on logical assumptions, are not far off from our figures. There are thousands of traders who carry out transactions between India and Pakistan. In the absence of a bank connection, they find other (illicit) ways to send money. They resort to hawala transactions,” he said.
He said that people are also using NGOs to send money into India. “Money is coming through several international philanthropic organisations that have a presence in both Pakistan and India.” “Hawala agents have infiltrated several international NGOs and philanthropic institutions. They use their funding channels to transfer money to India. The guise of social-work keeps them clean in the public eye. These organisations themselves are not involved in these illicit operations, but these agents are making use of them,” he added.
Dilip Ratha, manager, Migration and Remittances and lead economist in the World Bank said recently that the reported remittances are derived from a global estimation of bilateral remittance flows worldwide. However, he noted that the data on Indian migrants living in various countries was not complete and the earnings of NRIs and costs of living here in India are “proxied” by per capita income in terms of purchasing power parity. He said that it is a rough proxy and that it was not possible to ascertain the actual amount of such remittances that flow through unregulated or unrecorded routes.
Ratha had said that there is a need to improve bilateral remittance flow data across the globe, but especially in South Asia. He said that the correct way to move forward would be for the authorities to collect such data from money service businesses and financial institutions and balance it off with accounting timely household surveys that involve migrant households.
While the World Bank says that small remittances are sent by people in overwhelming numbers for genuine, day-to-day use by their families, Ratha said that it was wrong to assume that all the remittances were associated with financial or other sort of crimes. “Not every penny is sinister,” he said.
Officials in the World Bank and the RBI admit that data on remittances are incomplete in most countries, especially data relating to bilateral remittance flow.
Ratha explained that this was due to three major factors. “Firstly, remittances, until recently, were ignored as small change; secondly, remittance flows are not recorded fully as informal channels are used in many corridors, which is a response to high cost of sending money across the border into another country; and thirdly, such flows are very difficult to measure because a large part of the recorded remittance are quite often attributed to have originated from countries which have headquarters of large international correspondent banks.”

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