All that glitters is not good gold: India’s yellow metal smuggling scene

On April 13, days ahead of Akshaya Tritiya, gold prices hit a record high of Rs 60,800 for 10 grams in Mumbai. The soaring prices have ensured that consumer demand remains muted. Even the Akshaya Tritiya shopping on Saturday, some jewellers say, fell short of last year’s sales. In India, which is the second biggest consumer of the yellow metal in the world and its biggest importer, rising prices are a forewarning of something else — smuggling. Since the country levies a prohibitively high cumulative duty of 18% on gold imports, it is sneaked in through illegal means.

“This is the time when very little gold is coming in through legal channels and smuggled gold is flooding the market,” says Nawal Agrawal, convener of the jewellery panel committee of the Gem & Jewellery Export Promotion Council (GJEPC), on The Economic Times’ podcast The Morning Brief. Smuggled gold will be cheaper by Rs 8 -9 lakh per kilo.

According to estimates shared by the World Gold Council, around 10% of a country’s gold consumption is met by smuggled gold. “India consumes about 800 tonnes of gold every year of which around 80-90 tonnes are recycled gold coming from people selling it for cash and the rest comes from imports,” says Somasundaram PR, India CEO of the World Gold Council. “Our demand-supply indicates that about 80-100 tonnes of gold is smuggled into India because of the import duty,” he says. The import duty, which includes basic customs duty and Agriculture Infrastructure Development Cess, comes to 15%. With 3.5% goods and services tax (GST), the effective duty on gold imports is 18.5%.

Somasundaram says high import duty is not the only reason behind the smuggling of gold. “Duty is one element, but it is not the only trigger. Duty and demand both matter,” he says. “While duty is high, demand is not. You need strong demand to support smuggling. So, smuggling itself may not be much although whatever gold is coming in may be smuggled,” he adds.

According to Somasundaram, the height of gold smuggling was in 2013 when India raised the duty to 10% to contain gold imports and the current account deficit. In August 2013, the UPA government also rolled out the 80-20 scheme under which traders had to export 20% of the gold they had imported. The scheme, which was repealed in November 2014, saw irregular practices. “The 80-20 scheme and the 10% import duty created an artificial supply gap, leading to increased smuggling, estimated to be between 200 tonnes and 220 tonnes a year. Since then, gold smuggling has come down, particularly after demonetisation, the introduction of GST and the industry getting more organised,” he says.

THEN & NOW
Hindi cinema of the 1970s was replete with plots revolving around the smuggling of gold, with suitcases filled with gold “biscuits” snapping open in the climax. It was a reflection of Bombay from the late 1960s to the ’70s when underworld gangs led by the likes of Haji Mastan and Karim Lala thrived on smuggling — with gold being their item of choice.

“About 20-25 years back, 75% of smuggled gold was coming from the UAE,” says Dr Rajesh Kumar Verma, additional director-general, Central Board of Indirect Taxes and Customs, adding that his comments are personal views and not of his organisation. The situation changed during the pandemic when most flights were grounded. Smuggling by air came down and land routes opened up. In 2021-22, over 70% of illegal gold was routed through Myanmar and Bangladesh. “This land route has emerged as a new challenge and certain cities in Myanmar and China are believed to be possible routes used by smugglers,” adds Verma. “Unauthorised gold coming in from the eastern borders is also a reason why gold rates are always cheaper in Kolkata, the main market in the region,” says Agrawal of GJEPC.

Gold gets smuggled into the country in a hundred ways. A carrier can hide it in their body, stitch it inside their clothing, conceal it in their shoes, jackets or special belts, or simply carry it in their pockets.“Our team can sometimes spot these carriers from the uncomfortable way in which they are walking,” says Verma. “A simple air conditioner or a consignment of motors coming in will look pretty normal, but gold may be hidden inside it.” Somebody who has inserted gold in their body will be conspicuous by not eating anything for hours.

A recently retired senior customs official, who did not wish to be identified, says gold paste is the latest way in which the metal is being smuggled into the country. This is posing a challenge to customs officers as gold in paste form cannot be sensed by a metal detector. The official also confirms that a popular modus operandi is sending gold through courier services.

In FY22, the Department of Revenue Intelligence seized 833 kg of gold worth Rs 405 crore. However, the seized quantity is a very small proportion of the gold being smuggled into the country annually. “The rule of thumb is that in a good year you end up catching 5% of gold smuggled into the country,” says Somasundaram.

The smuggled gold is not only a loss to the exchequer, but also impacts the domestic jewellery market. “We are requesting the government to reduce the import duty so that smuggling doesn’t take place,” says Agrawal.

Somasundaram points out that smuggling cannot be completely eliminated. “Smuggling happens due to many reasons, not just import duty,” says Somasundaram. “However, the other reasons are very miniscule.”

Hallmarking of gold jewellery and artefacts with a six-digit unique identification from April 1 this year could clamp down on smuggling although it is intended to help consumers trace the jewellery back to its jeweller and check its purity.

To curb gold smuggling, Somasundaram suggests creating awareness among consumers not to buy gold without an invoice and incentivising the industry to go for digital payments. “When somebody buys gold that is 10-15% cheaper but without a bill, there is a high probability that they may be buying impure gold and could lose more money there,” he says.

The smuggling market is in a way a self-feeding mechanism.