Rs 2.9 crore in unaccounted cash was found with some merchants involved in the hair smuggling racket.

New Delhi: An ongoing "trade" relation between a section of merchants in India and China is likely to cheer up those batting for restrictions in sale of Chinese goods in the country. A racket in human hair — supplied from Indian traders to the Chinese — is flourishing, say sources in the Enforcement Directorate. There is tax evasion at both ends and possibly in nations where the finished product is ending up, officials said.

The supplies appear to be coming from parts of Andhra Pradesh and Telangana and are routed through Kolkata and the northeast. The catalysts in this underground trade are some people from Myanmar.

The agency stumbled upon the racket while investigating money laundering by Chinese online betting applications.

Officials found a trail of hawala payments to the tune of Rs 16 crore, which they traced to merchants of human hair. The payments were routed through Paytm accounts of the parent companies of illegal Chinese apps.

The agency found that domestic merchants are collecting and selling human hair to foreign merchants based in Hyderabad, Guwahati, and Kolkata, a media release by ED said today.

The stock is then smuggled via border points at Moreh (Manipur), Zokhawthar (Mizoram), and Aizawl (Mizoram), among others, to Mandalay in Myanmar), and from there, moved to China.

In China, the stock is allegedly getting labelled "Chinese hair" and processed — the traders there are managing to avoid import duties of up to 28 per cent. The fake labelling is also helping them earn 8 per cent in export incentives, the agency said.

The agency suspects many Indian exporters, too, are under-valuing the material to help the recipient merchants.

It was found that two Hyderabad-based traders received Rs 3.38 crore against sales in the northeast — via Paytm accounts of the parent companies of illegal Chinese apps.

The ED noticed that some Myanmar citizens were permanently stationed in the Telangana capital. They purchased human hair locally and exported it allegedly using the import-export codes of Indian entities.