An amazing surge in India's exports to the Bahamas has stoked the lingering suspicion that a slice of the country's trades is sham transactions done to bring back money stashed in secret accounts with offshore banks.

In just two years, exports to the Bahamas - best known as a tax haven - have shot up from $2.2 million in 2008-09 to $2.2 billion in 2010-11, according to commerce department data. The number in no way matches the data on the Bahamas' global imports, which according to UNCTAD - the global trade and investments monitoring agency - was $2.8 billion in 2010.

According to the CIA data base, India has only a 7.5% share in the Bahamas' imports, which works out to about $200 million in 2010. The wide gap, some think, is more than sloppy statistics. "This is just a way of bringing black money back into the economy when it needs to be converted into white money and used for other purposes such as investments," said an economist on the committee appointed by the government to suggest ways to curb black money.

This happens through export 'over-invoicing', which boils down to billing the overseas buyer $10 million for cargo that may be worth just $10,000. In such transactions, the buyer may be fictitious, or a shell or front company of the Indian exporter. It's a ploy to bring back undisclosed money under the garb of cross-border trade. Biswajit Dhar, a trade expert and director-general of RIS, a think tank, felt the government should be looking at these indicators of black money. "They should also look at a detailed list of exporters... I'm sure some of them are fictitious," he said.

The Bahamas is one of the jurisdictions to have signed a tax information exchange agreement with India. Some of the others include Bermuda, Isle of Man, British Virgin Islands and Cayman Islands. As per the information exchange pact, the countries are required to share information if the other country has reasonable ground to believe that there has been a tax offence. Under the circumstances, Indian residents holding money in banks in Nassau, the capital of the Bahamas, may think it's safer to either move their money to another destination or bring it back to India.

Difficult to Explain Jump

Nassau is a favourite tax haven for many wealthy Americans. While the Bahamas, a nation of 29 islands, is also a transshipment point, it's difficult to explain the sudden jump in exports from India. During April-December 2010, India's exports to the Bahamas were up 217% to $1.6 billion from the year-ago period.

For the last few months, analysts have raised eyebrows on India's export numbers. More so, at a time the US and Europe - the two biggest markets - are facing slowdown. While some have attributed this to inept data handling, a recent report by Kotak Institutional Equities Research has harped on the possibility of black money inflow. The report, authored by Sanjeev Prasad, Sunita Baldawa and Amit Kumar, draws no definitive conclusions, but said, "We can attribute some part of these gaps to data limitations but the large difference between official data and our observations begs a better and more sophisticated explanation."

It highlights how export data of major engineering companies, including automobiles and metals, does not match the steep increase in official export numbers. For instance, according to official data, engineering exports grew 79% year-on-year in 2010-11 while the export numbers compiled from respective figures reported by BSE 500 show a mere 11% increase. This gap could be as much as $28 billion. If this cannot be explained as a miracle export story of small, unsung companies, then the data mismatch casts a shadow on the GDP growth. Some like Sajjid Chinoy, JPMorgan's India economist, feels the concern relating to "over-invoicing" of exports could be overblown. Chinoy, who compared the official export figures with port traffic data, recently told The Economist magazine that the "conspiracy theories are flimsy".

But Nisha Taneja, who specialises in international trade at the Indian Council for Research and International Economic Relations, said the large discrepancy (in the data on export to the Bahamas) is a clear indicator of black money, even though more investigation is needed. The biggest component of India's exports to the Bahamas in 2010-11 was mineral fuels, at $1.9 billion, according to government data.

Experts say the government should improve its monitoring mechanisms to ensure lawful shipment of goods, economists believe. "In order to curb the flow of black money through the overinvoicing route, the government should ensure that the value of exported goods on paper matches the actual value," said Abhijit Das, director of the WTO centre at the IIFT. "This would require stepping up of efforts by customs authorities," he said.

Ajay Sahai, director-general of the Federation of Indian Export Organisations, said it is unlikely that formal channels could be used misused to this extent. "I don't think this difference can be attributed to black money. It could be because of different accounting mechanisms used by the Bahamas."