Hawala or Currency Exchangers.

Banks and the legal counters offer the rates of INR 37 for every dollar you sell, but charge you 41 INR for every USD you buy. So If I sell a Dollar and then immediately repurchase back, I get only 90 cents for a dollar. Thats a spread of 10% which by all global standards can be called Highway Robbery.

Indian currency is not yet fully convertible. Hence there are always some people who are fed up with the bureaucratic red tape and are willing to pay a premium for the dollars (hawala). Although this transaction would be illegal, these folks offer me 5% better rates than the banks and also ensure that no matter what I cannot be legally implicated.

Saddled with a few crisp US Dollar bills, I am in a moral dilemma. Should I do what is best for me (after all its my hard earned money) or should I go by the legal route and make the highway robbers richer?

BTW, I am not alone. According to Economist , Indians remit more than 24 Billion Dollars annually. So the banks charge us 1.2 Billion dollars annually as conversion fees. If I add to this the amount of dollars which Indians purchase for their imports, foreign travel and education, these highway robbers make multi-billion dollars every year.

Why is the competition not able to put a stop to this?
With the Indian forex reserves touching 300 Billion Dollars (30% of the country’s GDP), why does not govt make rupee fully convertible and put a end to Hawala?


10 thoughts on “Hawala or Currency Exchangers.

  1. well this doesn’t happen only in India it happens in other countries too
    they are highway robbers no doubt but this is because of taking full advantage of govt anomalies – worse for every chq transfer from us to india the official clearing time is 21 days and banks take upto a month – waiting for favorable rates and playing with ur money – i verified with a banker friend of mine after getting a complaint from a senior citizen who gets her inc/ssecurity pmt from us
    the government is no different – it is worse sometimes if u do the math politicians favor the hawala system – remember the race horse dealer who suddenly vanished from newsflow? they still keep octroi when they already have vat
    they still double tax mutual funds both amc cgs service tax after charging ddt at 25% dont forget cos already pay 35% corporate tax.
    they talk about alcohol being bad but still tax mild beer lot more than hard liquor or strong beer
    with the kind of tax and the way they tax people without giving any
    benefits or infrastructure in return- the government looks after its own interests – there is a growing vvip culture- so dude do what the leadership does..
    its democracy from the people by the people for the politician, the disconnect between the ruling and the ruled is growing
    have u read tn ninans post i had linked to it in my post


  2. well in rest of the ASIA (esp singapore, S Korea, Thailand) the spread rate for currency conversion is 1-2% max. that is why I am calling the spreads, charges etc as highway robbery.

    //they still double tax mutual funds both amc cgs service tax after charging ddt at 25% dont forget cos already pay 35% corporate tax.//
    could not get you. you mean to say that the mf pay tax on the profits they make by trading in securities?

    //still tax mild beer lot more than hard liquor or strong beer//
    wow, is that true.. can you give me some numbers and data about it.. i would like to do a post on it.

    //the disconnect between the ruling and the ruled is growing//
    i totally agree and working in MNC, i have realized that indians also lack the dedication, commitment and hard work which our asian counterparts show. No wonder, in spite of a command over english and brains we lag behind


  3. govt makes u pay
    service tax on service rendered tax on dividend payouts
    corporate tax –uske upar the amc cgs and the loads

    so what will remain for the bechara investor i shudder to think


  4. on hard work which our asian counterparts show
    true i saw a show on bbc abt chinese schools and at that level theywork like the military singlemindedly

    here there is a sense of futility – kya fayda kam karke? sara govt kha jayega
    tax aur inflation mein – plus u can always get away
    dont u think??


  5. //u know anyone selling euros unofficially?//
    why on earth would you like to buy it in black market?
    FERA/FEMA days are gone I think you can officially invest about 50-100K USD worth or foreign investments every year without any prior approval.

    //discarded discarded im pissed off all comments get d…//
    care to elaborate?

    //so what will remain for the bechara investor i shudder to think//
    an intelligent investor buys an ETF, a daring investor buys stocks directly, a novice would buy a mutual fund and a stupid investor would buy a ULIP….
    well it isn’t surprising that in spite of the fact that the taxes/AMC are in line with the theory ULIP and MF are booming.

    //dont u think??//
    i am not qualified to give an answer, but I think that its partly because of our communist (socialist) background. the hindu growth rate and the lack of rewards for performance in PSU made people to think in terms of how to minimize their efforts rather than maximize their output.


  6. but then i still will have to pay 10% dude that is a big shaving

    i posted a big comment it kept gettin discarded by wp
    so i split it up into units

    on bechara investor – fm always recomends ulips and mfs
    n dont u think
    ur reply was great- dhasu in bambaiya


  7. //but then i still will have to pay 10% dude that is a big shaving//
    in US or Europe people pay full tax on the returns on securities. in india we still pay 1/3 or the normal. So i am not that much worried.

    //fm always recomends ulips and mfs//
    well he has different reasons. as you once had said that even a barber has a portfolio in USA, but in india stock market traditionally has been a playing field of speculators and gamblers (primarily because gambling was either taxed too high or because casinos were banned).
    FM is promoting MF/ULIPs because they have been very successful in funneling the domestic savings into stock market. this introduces liquidity in the market and makes it tougher for the FII or speculators to corner the market.

    //ur reply was great- dhasu in bambaiya//
    thanks 🙂


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