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Rediff News  All News  » Business » Gold smuggling likely to rise 40% this year

Gold smuggling likely to rise 40% this year

Last updated on: May 24, 2013 11:06 IST

Image: A customer tries on a gold necklace at a gold shop in Hanoi.
Photographs: Kham/Reuters. Rajesh Bhayani in Mumbai

The high import duty on gold, local taxes and restrictions on imports are leading to a rise in smuggling of the commodity into the country.

Last year, 102 tonnes of gold, or 10 per cent of total imports, made its way through unofficial routes, according to Thomson Reuters GFMS, which compiles data for the World Gold Council.

It is estimated this year it could rise to 140 tonnes, an increase of 40 per cent.


Gold smuggling likely to rise 40% this year

Image: Five-tael (6.65 ounces or 190 grams) gold bars are seen at a jewellery store in Hong Kong.
Photographs: Bobby Yip/Reuters.
Early last year, the government had raised the import duty on gold to four per cent, in two phases. Also, the method of calculating this was changed to ad-valorem.

Recently, the Reserve Bank of India (RBI) had asked banks not to import gold on a consignment basis for domestic sales.

After this, such imports almost came to a halt and gold imported earlier was sold at huge premiums. 

Bachhraj Bamalva, former president of the All India Gems and Jewellery Federation, said, "Currently, for spot delivery of gold, smaller jewellers are paying premium of Rs 500-600/10g. Even after that, gold is not available."


Gold smuggling likely to rise 40% this year

Image: An employee holds a gold key during a photo opportunity at a jewellery shop in Seoul.
Photographs: Truth Leem/Reuters.
He added the import duty, the value-added tax and premiums for spot delivery would only lead to a rise in smuggling. 

After gold trade was liberalised and nominated agencies were allowed to import gold, smuggling of the commodity had declined for about 14 years.

The sudden spurt in smuggling of gold has opened a Pandora's Box, as payments for gold coming through unofficial routes are made through unofficial sources.

About $5 billion worth of smuggled gold would be paid through the havala route, or unofficial channels.

If non-resident Indians, as well as Indians working abroad, send remittances to India through the havala route, it provides them a premium on the official exchange rate.


Tags: Pandora , India

Gold smuggling likely to rise 40% this year

Image: Gold Bullion and coins from the American Precious Metals Exchange (APMEX) is seen in this picture taken in New York.
Photographs: Mike Segar/Reuters.
"The government may save dollars that would otherwise have been used to import gold. However, if remittances are diverted to the havala route, the government would lose the inflow of dollars and current account woes would continue," said Bamalva. 

An industry official said the government's action against unofficial import of gold and seizures was to the tune of only a few tonnes. 

Haresh Soni, president, All India Gems and Jewellery Federation, said, "After RBI's clampdown on gold imports by banks on a consignment basis, the supply channels for jewellers went haywire."


Gold smuggling likely to rise 40% this year

Image: A customer holds a gold necklace inside a jewellery showroom in Mumbai.
Photographs: Danish Siddiqui/Reuters.
Of the 1,000-odd tonnes of gold imports, 70 per cent was through this route, in which payments were made after the gold was actually sold in the Indian market.

A total of 230 tonnes were consumed by exporters; the remaining went to the domestic market.

Though imports through advance payments are still allowed, these add to costs. Also, as gold demand in the next few months is expected to be low, the demand from jewellers is expected to be need-based. 
Source: source