Hawala Part 4: 'Putting an end to hawala is next to impossible'

In our ongoing series on hawala money, we have dealt with various aspects regarding this menace. With such huge remittances into India done through hawala channels, the menace has grown bigger and what is worrying is that it has become a safe channel even for criminals and terrorists.

In the concluding part of the series, we speak with Professor, R Vaidyanathan, professor of finance in the Indian Institute of Management-Bangalore, who has prepared several papers on black money and how India should deal with the issue. In this exclusive interview with oneindia.com, Professor Vaidynathan says that there are only ways to minimize the problem, but to put an end to it is next to impossible. [Part 3: ISI controls Indian politicians via hawala]

How serious is the problem of hawala?

It is an extremely serious problem. It has shaken the economy to a large extent and curbing it is very difficult. However one must also bear in mind that not all hawala transactions are related to crime or terrorism.

Why is it that our agencies cannot track the menace?

There is nothing that passes on the wires when a hawala transaction is carried out. In fact, the money is deposited with the agent in one country and he hands out a code to the agent in India. [Part 1: Tracing hawala money transactions in India]

The money never moves through a wire transfer. It is just handed over to the person by the agent on the basis of trust. It is like how the terrorists had operated on mail. They open an email account and do not send mails.

They only save information on folders and convert it to a draft. The password is shared with the other person who opens the draft and reads the mail. This way no information is passing and hence it becomes extremely difficult to track.ß

How big is the problem today?

It has become a very big problem and with terrorists and criminals using the same channel, it has only grown bigger. It is a very lucrative business and several unemployed youth are joining these operatives. Not only are they paid well, but in recent cases, they have also been provided incentives such as insurance.

How difficult is to solve this problem?

It is very difficult. The problem is the biggest in Kerala. Half of Kerala resides in the Middle East and almost all of them depend on hawala to send money to their relatives back home. The sheer magnitude of the transactions is what makes it difficult to solve the problem. [Part 2: How Kerala became India's hawala capital]

How should India deal with the problem?

The government has taken the right step. It has reduced the transaction cost of remittance. Till now, what we noticed is that only 5 per cent of the population abroad sent money through a legitimate channel. Many find sending money through the regular channel too expensive and in such cases hawala is the cheaper option. Also it is a very trustworthy option for them since there has not been one single instance of fraud.

What else do you suggest?

I think that the cash holding of each person should be restricted. There is no need for any person to hold cash of over 20 lakh. If this is reduced and any holding above Rs 20 lakh is found then it should be deemed as black.

Are you suggesting plastic money?

Yes, I think plastic money and involving persons in more bank transactions is the answer here. Moreover, I also feel that the Rs 500 and Rs 1000 denomination notes should be done away with. We should go back to having only Rs 100 notes. This will reduce the cash transactions as it can get very bulky.

What about politics?

A lot of political courage is needed.

[Series concluded]