What is 'Round Tripping' in the content of FDI inflow

IAS Mains General Studies Sample Answers

What is 'Round Tripping' in the content of FDI inflow and why has it been in the news recently in the case of India?

Round-tripping is a money laundering technique. It is also known as round-trip transactions or 'Lazy susans'. This is defined as a form of barter system that involves a company while at the same time agreeing to buy back the same or similar assets at about the same price. This process is sometimes used as a means of increasing the apparent amount of sales and revenue generated by the seller during a specific financial period. While a relatively common process, not everyone in the financial community considers this a proper method of doing business.

Simply we can say this as a money laundering technique.

In 2009-2010 it captured the attention of media and air time because the opaque Participatory Note (PN) mechanism of the Foreign Institutional Investor (FII) regime. It has given a fillip to this practice of round tripping. Sadly government and Reserve Bank of India (RBI) hails these as restriction of this money can bring crashing on the trading bourses of the country.

Round-tripping, also known as round-trip transactions or "Lazy Susans", is defined by The Wall Street Journal, as a form of barter that involves a company selling "an unused asset to another company, while at the same time agreeing to buy back the same or similar assets at about the same price." Round trips are characteristic of the New Economy companies. They played a crucial part in temporarily inflating the market capitalization of energy traders such as Enron, CMS Energy, Reliant Energy, and Dynegy.

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