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?