The traveller was an ordinary man just that his quietness seemed a bit unusual and face swollen. He indicated that he was observing a religious vow of silence. As he sauntered through the airport, something seemed curious to customs officials. They sought to quiz him, he fumbled; his mouth opened up a bit. Silence was indeed golden. There were medium-sized gold bits hidden inside his mouth. He was travelling from Sri Lanka to Chennai.
Elevated import duty on gold and stringent conditions for purchases from overseas have prompted smugglers to find innovative ways to beat the customs staff. As the government raised on Friday the import duty on gold further to 15% from 10.75% in a bid to ease pressure on the country’s current account, some industry executives apprehend a 20-30% jump in smuggling due to the move.
Some estimates suggest gold smuggling in India could be as high as 200-300 tonnes a year. Of course, given that grey market dealings are not recorded, it’s difficult to firm up a precise estimate of gold smuggling, the executives conceded. However, what is amply clear is that seizures by customs officials typically make up only a very tiny fraction of the country’s official gold imports.
For instance, while India imported 651 tonnes of gold in FY21, the official seizures were less than two tonnes (See chart). Up to November last fiscal, while imports were to the tune of 628 tonnes, seizures stood at just 1.7 tonnes.
Urging the government to reconsider its move, Ahammed MP, chairman of Malabar Gold & Diamonds, one of the country’s largest jewellers, told FE: “The increase in import duty is likely to give a rise to gold smuggling to a large extent for evading tax. As a result, the government stands to lose a huge amount of tax revenue.”
Gold prices, as such, have remained at relatively elevated levels despite easing in recent months, and a duty hike on top of that will be a blow to jewellery trade, industry executives said. On MCX, gold futures for August delivery gained 0.8% on Friday to settle at Rs 50,917 per ten grams. The duty increase is “likely to lead to a proportionate rise in the price of domestic gold by around Rs 2,000 per 10gm, factoring in international gold prices which are trading with a slightly negative bias”, said Sugandha Sachdeva, vice-president (Commodity & Currency Research) at Religare Broking.
Somasundaram PR, regional chief executive officer (India) at the World Gold Council, said unless it’s a “tactical and temporary” move, it “will likely strengthen the grey market, with long term adverse consequences for the gold market”.
According to All India Gem and Jewellery Domestic Council chairman Ashish Pethe the sudden hike in the import duty “will put the entire industry in a spot and may encourage smuggling”.
The government’s decision came after data showed a 789% surge in gold import value in May to $6 billion. In FY22, gold imports surged 33% to $46 billion, albeit on a contracted base.