Activities from the Informal Economy: Farmer and Small Trader

City Research Online City, University of London Institutional Repository Citation: Kashyap, S. (2021). The drivers and dynamics of money laundering mechanisms: the case of India. (Unpublished Doctoral thesis, City, University of London) This is the accepted version of the paper. This version of the publication may differ from the final published version. Permanent repository link: https://openaccess.city.ac.uk/id/eprint/26564/ Link to published version: Copyright: City Research Online aims to make research outputs of City, University of London available to a wider audience. Copyright and Moral Rights remain with the author(s) and/or copyright holders. URLs from City Research Online may be freely distributed and linked to. Reuse: Copies of full items can be used for personal research or study, educational, or not-for-profit purposes without prior permission or charge. Provided that the authors, title and full bibliographic details are credited, a hyperlink and/or URL is given for the original metadata page and the content is not changed in any way. City Research Online: http://openaccess.city.ac.uk/ [email protected] THE DRIVERS AND DYNAMICS OF MONEY LAUNDERING MECHANISMS THE CASE OF INDIA Shreeya Kashyap DEPARTMENT OF INTERNATIONAL POLITICS City, University Of London A thesis submitted for the degree of Doctor of Philosophy Declaration of Authorship Name: Shreeya Kashyap University: City, University of London Supervisor of thesis: Dr Ronen Palan Title of thesis: The Drivers and Dynamics of Money Laundering Mechanisms: The Case of India Word count: 109,950 This thesis is a presentation of my original research work. Wherever contributions of others are involved, every effort is made to indicate this clearly, with due reference to the literature, and acknowledgement of collaborative research and discussions. The work was done under the guidance of Dr Ronen Palan and Professor Richard Murphy at City, University of London. Signed Shreeya Kashyap Date: July 2021 ABSTRACT This thesis examines the fundamental institutional changes and continuities in the Indian economy from an institutional-structural lens, i.e., India’s economic reforms of 1991. These reforms signaled a paradigm shift resulting in significant changes in monetary and fiscal policy. This study acknowledges preexisting systems of money laundering and explores whether, or not the introduction of open market reforms in India has facilitated the emergence of more complex money laundering mechanisms. These include capital flight and development of sophisticated book-entry mechanisms, all benefiting from convergence since the 1990s of IT technology, globalisation and free-market policies. The analysis traces the pre-existing practices related to money laundering including money transfer mechanisms of hundi and hawala. Furthermore, it provides rich empirical evidence to show how the Indian economy can be thought of as a complex eco-system in which the formal, the informal and the black (illegal) are continuously connected through the novel and interesting mechanisms that this study brings to light – namely ‘de-laundering’ and ‘parking.’ The thesis relies on primary and secondary literature as well as qualitative interviews with a range of policymakers, politicians, Members of Parliament, members of state legislatures, bureaucrats, business leaders, finance professionals, lawyers and accountants. These included actual players in the chain of money laundering and ‘de-laundering’. I argue that the existence of the black economy, as well as mechanisms of money laundering, are rooted in the socio-economic fabric of the Indian economy. I link the Indian black economy and money laundering to a nexus between politicians, businessmen and bureaucrats. This argument is illustrated through an analysis of selected mini-case studies from different sectors of the economy. The analysis shows that the black and the white economy are linked, and that money goes through cycles of laundering and de-laundering as it moves back and forth from black to white. This page intentionally left blank PREFACE AND ACKNOWLEDGMENT The idea for this thesis came to me unexpectedly, during an afternoon module session at the University of Warwick in 2012. The topic of the week was tax havens and my module guide Dr Owen Wilson showed the class an intriguing documentary on the same. I remember thinking how wonderful it would be to analyse the issue of tax havens in the context of India. I am thankful to Dr Wilson for interacting with me during those initial weeks and helping shape my fledgling ideas regarding shadow economies and flight of capital. The inception of my proposal had the plight of Indian economy at its heart. What began as a tea time debate over the ills of flight of capital and crony capitalism, led to a deeper study of the political economy focussing on tax havens and money laundering in developing economies; particularly India, post-economic liberalisation. I have grown up in an era where politics in India has become a dark word; synonymous with corruption. I have seen the impact of political cronyism leading to a policy paralysis in my country over the last two decades. It is this that has always inspired and driven me to work in the field of politics and political economy. My love for international politics grew exponentially during the second year of my undergraduate degree in political science at Delhi University. It was during a lecture on social contract theory that I discovered my passion for studying the relationship between the citizen and the state, which is the foundation of modern-day democracy. It was then, that I decided to pursue my masters in International Political Economy (IPE), to study the interdependent relationship between states and markets. Consequently, I pursued my Masters in Political Economy at the University of Warwick. During my masters, I realised that an interdisciplinary approach is imperative to understand any contemporary policy issue. I found a real-world manifestation of my belief on a daily basis at my job, working as a project associate under Dr Rathin Roy with the Department of Economic Affairs (DEA), Ministry of Finance (Govt. of India). I dealt with issues concerning G-20 countries which includes monetary policy formulation, Taxation and International Tax Co-operation with particular emphasis on tax evasion and ‘base erosion and profit shifting’ (BEPS). I am extremely thankful to Dr Roy, who gave me valuable inputs on my initial ideas and eventually inspired me to pursue a PhD in Political economy from the United Kingdom. I am also thankful to Dr Govinda Rao, Dr Pai Panandikar, Dr Suranjali Tandon, Ms. Vandita Sahay and Ms Swayamsiddha Panda for helping me refine my initial proposal. Finally, this thesis would not have been possible without the love and support of my caring family. My father has been a constant source of inspiration and support to me. From documenting my initial ideas to accompanying me to various Indian cities for fieldwork, he has supported me tremendously. I would also like to mention my brother who made repeated visits to London and for whose company and support I was grateful, particularly in the winter months when the research experience becomes progressively more isolating in nature. I would like to express my gratitude to my supervisor Dr Ronen Palan who has been an understanding and supportive mentor to me over the last four years of my time at City, University of London. I would also like to express my gratitude to my secondary supervisor Mr. Richard Murphy, who agreed to be my second supervisor at a very short notice. Finally, I am very thankful to my mother who has been my friend and emotional anchor in the last five years. She has been a source of constant encouragement, from the time I decided to apply for higher studies, to the final day of corrections especially during the nationwide lockdown days of the Covid-19 pandemic. Money Terms Throughout this thesis I use the Indian terms lakhs and crores. It provides authenticity to my research, as these terms were used by all the participants in the interviews. To clarify: 1 lakh = 100,000 1 crore = 10 million 1 million = 10 lakhs 1 billion = 100 crores I have employed the terms millions and billions when I quote from international sources such as FATF, IMF or World Bank reports. Table of Contents List of Tables ......................................................................................................... ii Abbreviations ...................................................................................................... iii Chapter I ............................................................................................................... 2 Introduction .......................................................................................................... 2 Section I: An Overview ................................................................................................. 2 1.1 Central Question and Objective ................................................................................................ 2 1.2 Hypothesis ................................................................................................................................. 4 1.3 Contribution to Literature ......................................................................................................... 4 1.4 The Argument ............................................................................................................................ 9 1.5 Main Findings

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