COLUMN – India needs to lower import duties to curb rising gold smuggling

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When people start shoving gold up their rectum to bring it to India, it not only shows desperation but also focuses on an economic environment that encourages smuggling of the yellow metal, so dear to Indians, writes Shekhar Ghosh.

It reflects rather poorly on policy and policymakers too.

We all know Indians love gold, hoarding some 20,000 tonnes in their vaults, temples and under their beds. Restriction of imports since 2013 as part of India’s attempt to control its spiralling current account deficit has only seen a stupendous rise in smuggling.

The import duties, which are currently at 13 percent, therefore, need to be reduced, and fast.

However, the government seems to be keen on making a hash of an already unhappy situation that legitimate gold buyers and sellers are facing.

The recent announcement that one percent tax will be collected at source for purchase of gold jewellery of over Rs 2 lakh rupees from April 1 only adds to the concerns. The earlier limit was Rs 5 lakh, and the shift lower might now trigger smuggling of gold jewellery too beyond the bars and biscuits that are already being brought in illegally.

Price differential encourages illegal trade

Lowering the duty structure will not only revive sagging customer demand, it will also uplift business sentiments for the trade and increase the offtake in the retail gold business.

A 24-carat gold biscuit weighing 100 grams costs over Rs 28,000, more than what it comes for in Dubai. Do the math for 1 kg gold and the difference in profit is more than Rs 2.81 lakh. This figure can appreciate based on escalating gold prices in the country. This enticing difference in price is the rationale behind the thriving gold smuggling racket in India.

Let’s see what’s been happening at India’s various airports and borders in the past few years.

Yesterday (19 February), at Goa airport, a Kerala-bound passenger from the Middle East was caught smuggling gold worth Rs 54 lakh. A couple of days earlier, Mumbai Customs arrested one Saudi Arabian Airlines employee for smuggling gold worth Rs 63.7 lakh. At the Sardar Vallabhbhai Patel International Airport in Ahmedabad, there have been attempts to smuggle in more than 100 kg of gold over the past three years.

From April 2015 to January of 2016, Bengaluru Customs unearthed a whopping 28.97 kg of gold worth over Rs 8 crore smuggled into the Kempegowda International Airport (KIA) by smugglers often called ‘mules’ or carriers’ or ‘couriers’.

Seizures made by sleuths of the Directorate of Revenue Intelligence (DRI), primarily gold smuggled in through air cargo, add an extra 20% to the overall gold seizures in Bengaluru. The Muvattupuzha-based racket allegedly smuggled between 1,700 kg and 2,000 kg of gold into Kerala between 2013 and 2015.

According to the data of the finance ministry, 123.155 kg of smuggled gold was seized by the Directorate of Revenue Intelligence (DRI) from 2013-14 to 2015-16. According to World Gold Council (WGC), in 2016, smuggling of gold into India increased in response to the 1% manufacturing excise duty.

Significant smuggling

“For 2015, our estimate for gold smuggled into India is not insignificant: we estimate 119 tonnes of gold landed in India through unofficial channels. And we expect 2016 gold smuggling to be higher (120 tonnes-135 tonnes), because of the 1% manufacturing excise tax,” WGC said in a report.

Most of the gold flown into India comes from West Asia, notably the United Arab Emirates, according to the report. Smuggling is usually carried out by low income workers returning home; they receive carrier fees as well as a sponsored air ticket. While they get caught, the big fish continues to be in business.

Smuggling via land or sea routes tends to occur through the relatively porous borders that India shares with its neighbours, notably Pakistan, Nepal, Bangladesh and Sri Lanka. In the first half of 2016, in response to the newly imposed duty, smuggling activity from Thailand also increased, the WGC said.

The gold is now brought in through smaller airports such because of high security at the larger metroes.

The Delhi Zonal Unit (DZU) of the Directorate of Revenue Intelligence (DRI) has busted a major gold smuggling racket involving smuggling of around 7000 kilograms of gold worth more than Rs. 2000 crore, over a period of past two and half years. This probably is the single biggest case of detection of gold smuggling by any agency in India.

On investigation it was discovered that the seized gold bars of 24 carat purity were admittedly smuggled into India through the Indo-Myanmar land borders and were brought to Delhi from Guwahati by a domestic flight. Intelligence also reveals that huge quantities of gold bars of foreign origin are being smuggled from Myanmar through Indo-Myanmar border.

Intelligence indicates that activities relating to smuggling of gold bars are continuing unabated. Detection of smuggling of gold through Indo-Myanmar border is challenging due to the topography and porosity of the land border.

Smuggling on rise internationally

Internationally too, smuggling seems to be the rise. In July 2016 the United Nations Conference on Trade and Development (UNCTAD) produced a report in which it accused South African mining companies of systematically under-invoicing gold exports to the value of more than $78.2 billion between 2000 and 2014.

The accusation was based on a discrepancy between South African gold export figures and the import figures of other countries. UNCTAD suggested that this was “a case of pure smuggling of gold out of the country”. One result was massive revenue losses to the state.

Reduction of gold import duty from the present 13% to 6% has been a long-pending demand of the gems and jewellery industry, but the government has been tardy in not accepting their demand bossting gole smuggling.

Till the import duty on gold is reduced substantially, difference in prices between global and Indian gold will continue to make smuggling a lucrative business despite the arrests. The country needs to think innovatively to curb this menace.

(The columnist is an independent writer with interest across various commodities sectors and current affairs)

 

 

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