May 27, 2024


Delighting finance buffs

What makes India a gold smuggling destination?

The extreme love for gold in India is centuries old. India had earned the sobriquet of the golden bird without having huge reserves of gold in its mines. Roman writer Pliny complained in the first century AD about India draining all gold from the empire in lieu of fine fabric and spices.

Superior trade practices helped India get gold in every hold — the kings’ treasuries and each of the temples. Two thousand years after Pliny, India still sees one-third of all gold movements happening through its borders, says Canada-based group IMPACT in its assessment.

It is estimated that up to one-fourth of the total volume of gold entering India arrives here through illicit trade. India imports around 800-900 tonnes of gold every year while the annual consumption is around 1,000 tonnes. This suggests that up to 200 tonnes of gold is being smuggled into the country.

The Kerala gold smuggling case has brought the focus on India being a safe haven for illicit trade in the yellow metal. The NIA is handling the case over suspicion of links between gold smuggling and terror networks in India. A secretary to Kerala Chief Minister Pinarayi Vijayan has been removed and two UAE consulate employees taken in to NIA custody as part of the probe.

Observers say India has recently seen an upsurge in gold smuggling, which was rampant during the decades before liberalisation and opening up of Indian economy in 1990s.

The economic reforms of 1990s had repealed the Gold Control Act of 1960s that prohibited import of gold except for jewellery. The law had led to the emergence of a notorious network of gold smugglers during 1960s, 1970s and 1980s. Reforms led to a cap of Rs 450 per 10 gram on the duty imposed on the metal bringing gold smuggling almost to a grinding halt.

The rates started rising in 2013 when the government shifted from fixed rate to ad valorem, and within two months, the duty on gold increased four-fold to four per cent.

Today, the import of gold attracts a customs duty of 12.5 per cent (raised last year from 10 per cent), a GST of 3 per cent, and an additional GST of 5 per cent on making of gold ornaments.

Many argue that against the backdrop of the pull for gold among Indian people, a higher rate of taxes incentivises smuggling of the metal. Some estimates say there is a profit of Rs 6 lakh on every kg of smuggled gold over that that’s imported through legal routes. With the price of gold crossing Rs 50,000 for 10 gram, illicit trade becomes all the more profitable.

IMPACT assesses that India has approximately 20,000 tonnes of gold in private possession, stored in people’s households and offered at temples. This volume exceeds the combined weight of gold reserves held by the central banks of the US, the Eurozone and China. The volume is only increasing by the day.

Most of the gold enters India through the UAE, which accounts for 75 per cent of all entries. The UAE, in turn, is the favourite destination for gold coming from the Great Lakes region in Africa, the IMPACT report says. The seizure rate of illicitly traded gold is around two per cent, according to the World Gold Council’s (WGC).

India’s porous borders with Nepal, Bangladesh, Bhutan and Myanmar help smugglers in other cases. In 2019, the Directorate of Revenue Intelligence (DRI) was quoted in news reports as saying gold smuggling had surged from China, Taiwan and Hong Kong as well. E-commerce platforms are being used to hide gold in white goods, the DRI said.

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