indias gold fetish and switzerlands data secrecy devesh kapur, marla spivack, arvind subramanian,...
TRANSCRIPT
India’s Gold Fetish and Switzerland’s Data Secrecy
Devesh Kapur, Marla Spivack,
Arvind Subramanian, and Milan Vaishnav*
November 5, 2013
*Devesh Kapur is at the University of Pennsylvania, Marla Spivack and Arvind Subramanian at the Center for Global Development, and Milan Vaishnav at the Carnegie Endowment for International Peace. The authors are grateful to Alex Cobham, Edward Collins, Kimberly Elliott, Willa Friedman, Kishore Gawande, Nabil Hashmi, Christian Meyer, Andres Missbach, Mead Over, and Justin Sandefur for advice and comments. All errors are our own.
Agenda
I. Motivation
II. Data
III.Explanations
IV.Conclusions
Motivation
Recent years have seen much higher growth rates than previous decades
02
46
81
0
1981 1985 1989 1993 1997 2001 2005 2009 2013
India's Annual Growth Rate
Source: World Bank. Annual percentage growth in GDP. Aggregates are based on constant 2005 USD
India annual GDP growth rate
Per
cen
t an
nual
GD
P g
row
th
A period of large scale scandals – as the pie grows so do opportunities for rents
2G telecom scam:
Price tag: $13 billion
“Coal-gate” scam:
Price tag: $33 billion
Ex-chief minister Y.S. Reddy land scandal
Price tag: $16.2 billion
Ethereal Terrestrial Subterranean
What about illicit outflows?
Near-perfect correlation between gold imports and current account deficit
Gold and Current Account Deficit
Four Facts about Gold Imports
1. Financial savings and gold
2. Composition of gold imports
3. Share of gold imports from Switzerland
4. Discrepancies
1. Financial savings have been falling relative to GDP as gold imports have been
rising relative to GDP
1998 2000 2002 2004 2006 2008 2010 20128%
9%
10%
11%
12%
13%
0%
1%
2%
3%
4%
HH savings as a share of GDP Gold imports as a share of GDP
HH
Sa
vin
gs
as
a S
ha
re o
f GD
P
Go
ld Im
po
rts as a
Sh
are
of G
DP
Sources: IMF International Financial Statistics, Reserve Bank of India, UN Comtrade
2. Gold imports are mostly composed of gold bars
0
200,000
400,000
600,000
800,000
1,000,000
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
Quantity in Kilograms
gold bars manufactured and powdered gold
0
10,000
20,000
30,000
40,000
50,000
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
Value Millions of 2010 USD
gold bars manufactured and powdered gold
Indian Gold Imports by Type of Gold
0
200,000
400,000
600,000
800,000
1,000,000
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
Quantity in Kilograms
gold bars manufactured and powdered gold
0
10,000
20,000
30,000
40,000
50,000
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
Value Millions of 2010 USD
gold bars manufactured and powdered gold
Indian Gold Imports by Type of Gold
0
200,000
400,000
600,000
800,000
1,000,000
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
Quantity in Kilograms
gold bars manufactured and powdered gold
0
10,000
20,000
30,000
40,000
50,000
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
Value Millions of 2010 USD
gold bars manufactured and powdered gold
Indian Gold Imports by Type of Gold
0
200,000
400,000
600,000
800,000
1,000,000
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
Quantity in Kilograms
All other partners Switzerland
0
10,000
20,000
30,000
40,000
50,000
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
Value in Millions of 2010 USD
All other partners Switzerland
Indian Gold Imports by Partner
0
200,000
400,000
600,000
800,000
1,000,000
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
Quantity in Kilograms
All other partners Switzerland
0
10,000
20,000
30,000
40,000
50,000
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
Value in Millions of 2010 USD
All other partners Switzerland
Indian Gold Imports by Partner
3. Switzerland is a key import partner for India
0
200,000
400,000
600,000
800,000
1,000,000
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
Quantity in Kilograms
All other partners Switzerland
0
10,000
20,000
30,000
40,000
50,000
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
Value in Millions of 2010 USD
All other partners Switzerland
Indian Gold Imports by Partner
-1,000,000 -800,000 -600,000 -400,000 -200,000 0
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
Quantity in Kilograms
Switzerland All other partners
-40,000 -30,000 -20,000 -10,000 0
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
Value in Millions of 2010 USD
Switzerland All other partners
Partners' Export of Gold to IndiaLess India's Import of gold from Partners
4. There are large discrepancies in India’s reported imports of gold and partners
reported exports to India
-1,000,000 -800,000 -600,000 -400,000 -200,000 0
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
Quantity in Kilograms
Switzerland All other partners
-40,000 -30,000 -20,000 -10,000 0
2012
2010
2008
2006
2004
2002
2000
1998
1996
1994
1992
1990
1988
Value in Millions of 2010 USD
Switzerland All other partners
Partners' Export of Gold to IndiaLess India's Import of gold from Partners
-1,000,000 -800,000 -600,000 -400,000 -200,000 0
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
Quantity in Kilograms
Switzerland All other partners
-40,000 -30,000 -20,000 -10,000 0
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
Value in Millions of 2010 USD
Switzerland All other partners
Partners' Export of Gold to India Less India's Import of gold from PartnersPartners export of gold to India less India’s import of gold from partners
Papers in the existing literature examine under-invoicing exports to avoid taxes, but what about capital outflows via over invoicing of imports?
“Tax Rates and Tax Evasion: Evidence from ‘Missing Imports’ in China” Fisman & Wei (2004) Journal of Political Economy.
“Tariffs, enforcement, and customs evasion: Evidence from India” Mishra, Subramanian, & Topalova (2008) Journal of Public Economics.
Data
India import from country c of product p in time t
Country c export to India of product p in time t
Indian Imports
Outflows: over invoicing of imports
over invoicing of imports = financial outflow from India
Country exportcpt – India importcpt ≤ 0 = over invoicing of imports
Challenge: many unmatched pairs
Observations Share
Partner exports to India with no matching import 367,797 23%
Indian imports from partners with no matching export 539,235 33%
Matched Indian Imports and Partner Exports 721,851 44%
Total 1,628,883
Indian Imports
Assume, if India reports an import and partner does not report an export, the product was smuggled or never actually never exported. Code the missing value as 0.
Assume, if India reports an import and partner does not report an export, this is an error. Drop these observations.
Two possible extreme assumptions for unmatched observations:
Smuggling Assumption
No Smuggling / Error Assumption
Total outflows increasing over time under both smuggling and no smuggling assumptions
-200,000 -150,000 -100,000 -50,000 0
Millions of 2010 USD
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
Total outflows - smuggling assumption
-80,000 -60,000 -40,000 -20,000 0
Millions of 2010 USD
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
Total outflows - no smuggling assumption
Millions of 2010 USD
Partner reported exports to India less India reported imports from partner
Smuggling assumption No smuggling assumption
Smuggling assumption
Key commodities standout in over invoicing of imports
No smuggling assumption
Millions of 2010 USD
Partner reported exports to India less India reported imports from partner
Key commodities make up a greater percentage of over invoiced imports than of total imports.
7064 62
73 72
60 5753
63 65
55 56
7064
57
4636
51
Key commodities as a percentage of total imports
Key commodities as a percentage of over invoicing of imports
smuggling assumption
Key partners standout in over invoicing of imports
Millions of 2010 USD
Smuggling assumption
Partner reported exports to India less India reported imports from partner
No smuggling assumption
59 58 59 58 54 50 48 4255 48 45 43 44 39 40 38
25
50
Percent of total imports from key partner countries
Percent of over invoicing of imports from key partner countries
smuggling assumption
Key partners account for a greater percentage of over invoicing of imports than of total imports
Switzerland stand’s out in over invoicing of India’s gold imports
Partner reported exports of gold to India less India reported imports of gold from partner– smuggling assumption
These discrepancies persist when we look at discrepancies in quantities.
Partner reported exports of gold to India less India reported imports of gold from partners – smuggling assumption
Discrepancies are not the result of mispricing. Indian prices closely track world prices
05
001
,000
1,5
002
,000
Nom
ina
l US
D p
er to
ry o
z
1990 1995 2000 2005 2010year
Indian price World price
World and Indian Gold Prices, Nominal DollarsNominal Price of Gold
Gold bars stands out in total over invoicing of gold imports, but when we drop unmatched observations these
inconsistencies disappear, why?
Millions of 2010 USD
Partner reported exports of gold to India less India reported imports of gold from partner
Smuggling assumption No smuggling assumption
-40,000 -30,000 -20,000 -10,000 0
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
Value Millions of 2010 USD
gold bars manufactured and powdered gold
-6,000 -4,000 -2,000 0
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
2000
1999
Value Millions of 2010 USD
gold bars manufactured and powdered gold
We see extreme discrepancies in gold bars because Switzerland (and other countries) do not report country
specific exports of gold bars
Indian imports from Switzerland Swiss exports to India
Explanations
Benign explanation
Swiss don’t report, but not for any nefarious reason. Non-reporting policy was adopted many years ago (see next slide) and remains because of policy inertia.
If Switzerland reported country-specific figures for its gold exports we would see that they closely mirror India reported imports from Switzerland.
Switzerland stopped publication of detailed statistics on monthly gold movements in and out of the country after complaints from leading Banks that it was bad for business....
…the “Big Three” [banks] manager of the Zurich gold pool complained that identification of countries of origin and destination was harming business, as anonymity is a vital element in dealing with sellers and purchasers of gold.
“
”
January 1981
“
”
Malign explanation
Switzerland is an attractive destination for capital, because of Swiss financial secrecy.
Those wishing to move funds out of India are taking advantage of the Swiss non-reporting to mask illicit flows in the large Swiss-India gold trade.
…Efforts to lift the veil on Swiss banking secrecy have gained momentum…
…India dispatched - 232 requests for secret financial information - to Switzerland, [and] 145 similar letters to Mauritius during 2012-13.
…While a huge investment into the country is routed from Mauritius, a number of high-value and criminal probes - are connected to black money stashed in Swiss banks…
….Among the major countries to which India dispatched its secret tax and finance related queries during 2012-13 fiscal were United Arab Emirates (38), United Kingdom (26), United States of America (61), British Virgin Island (22), Cyprus (16), Denmark (11) and Singapore (19)...
““
”
June, 2013
“[An] MP has asked parliament to revisit this policy. If parliament agrees to a more detailed publication of data [a new policy] could come into effect by 2014.
“Since …1981, gold data can only be published quarterly and without partner countries.”
Swiss Federal Customs Agency confirms that 1981 policy is still in place
Wrapping up: benign explanations
• Increase in gold imports reflects gold prices and domestic inflation
• Imports from Switzerland because Switzerland produces high quality gold bars
• Discrepancy because Switzerland does not publish export data
Wrapping up: malign explanations
• Growth led to ill-begotten wealth, some of which is stashed domestically in gold
• Hence the decline in financial savings and increase in gold imports
• The gold trade channel offers a convenient way of expatriating wealth to the tax haven, which also happens to be the source of imports. This channel is not only, convenient it is also “legitimate,” at least in the limited sense that payments can be made through the banking system for prima facie legal (namely trade) purposes.
• And conveniently, Switzerland does not publish details of gold export data even though it publishes all other export data
When endogenous rents emerge, gold offers 4 advantages
Domestically, many prefer to store wealth in gold
Internationally, over invoicing gold allows outflows
Money can be sent to Switzerland without suspicion
Swiss do not publish exports of certain types of gold
Conclusions• Since 1981, the Swiss have not reported country specific data on
imports or exports of gold – What is the rationale behind this policy in 2013?
• The international community has made great strides in efforts to improve transparency and curtail money laundering and tax evasion.
– Switzerland has been responsive to these efforts, led by the the US and other rich nations
• It is time to extend transparency to areas of concern to developing nations, struggling to improve governance and reduce corruption.
– Switzerland could help in this endeavor by publishing details of its gold trade.
• Unraveling the mystery of India’s gold fetish could well be in the hands of the bureaucrats of Berne.
– The clarion call from developing countries to Switzerland should be:
“Publish or We Perish”
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