500 kg of gold smuggled into India every day

Import curbs open backdoor channels to bring in the yellow metal.
The hike in import duty on gold has led to a spurt in smuggling of gold into the country from neighbouring states like Bangladesh, Myanmar and Sri Lanka.The latest provisional data showing a massive shrinkage in the current account deficit (CAD) for July through September has only raised more eyebrows among the sleuths monitoring the activity with limited resources.Directorate of Revenue Intelligence (DRI) top officials estimate the smuggling at 500kg a day with less than 1% of the illegal consignment getting booked by law enforcers. Thus implying a monthly Rs4,500 crore of illegal imports at current market prices or Rs54,000 crore annually.
Contrast this with finance minister P Chidambaram’s target of 20-25 tonne imports per month, almost 15 tonne of the demand shortfall is being met by smuggled gold.The buck doesn’t stop at smuggling, “How does one fund the transaction if not through the illegal hawala (cash) route?” asked a senior economist.“Payments are also being made through under-invoicing of exports or over-invoicing of imports for smuggled gold,” he added.Official estimates available with dna, put the Jan-Oct 31, 2014 number of gold seizures at 579 and valued at Rs153.20 crore and 871 confiscated goods worth Rs99.08 crore in fiscal 2013.The twin causes for smuggling are the hike in import duty of gold, in the last 18 months, from zero to 10% that reduced legal inflows of the yellow metal and the consumer demand that remains inelastic.
India, in calendar year (CY) 2010 and before duty hike, imported gold worth $38.47 billion and for CY 2011 it was $53.92 billion. Surprisingly, imports dipped marginally to $52.77 in CY 2012 after the government cess starting from 2% and gradually increased to the current level of 10%.For 2013, Jan-Sep, the figure eased to $36.08 billion, a major reason for the easing CAD.With the levy, the government has re-introduced controls that were done away with in 1993 by the then prime minister Narasimha Rao and the current prime minister Manmohan Singh, then finance minister, to rid the economy of smuggling and money laundering.The present finance minister, P Chidambaram’s target to bring CAD to $56 billion may quite be achievable under the present circumstances if backdoor operations of gold imports are ignored.
“Chidambram’s intention is to bring down gold imports officially and pump in the surplus cash, estimated by him to be $40 billion, in productive sectors,” said a senior official from the intelligence unit of the government. “Theoretically, the approach is right but practically, he is breaking the backbone of the economy and creating jobs for smugglers,” said the official.CAD — the overshot traded value of goods and services imported over those exported — for the aforesaid period fell a whopping $16.6 billion or Rs1,03,036 crore, at average dollar-rupee rate of Rs62, to $5.2 billion, against the previous quarter’s (April-June) $21.8 billion.This was largely due to a massive drop in gold imports to the tune of $12.5 billion or Rs77,587 crore from the previous quarter or $7.2 billion (Rs44,690 crore) year-on-year due to high import levies.Over 85% of gold imports were in jewellery, unlike China where over 50% are for industrial use, like IT chips, integrated circuits and transistors, to name a few.
“We have brought this to the notice of Chidambaram,” said a government official.“The demand for gold is always on the rise; every Indian invests in gold and even the poorest of the poor would gift gold as part of the tradition, be it the arrival of a new baby in the house, wedding or a success in job or education. What is our FM trying to do if not bring back the Licence Raj,” quipped a senior banker.
Source:Bullion Bulletin

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