Gold smuggling has actually zoomed

As govt tries hard to choke the metal import, entry through unofficial channels doubled to 60 tonnes in first 5 months of this financial year

The government has been shouting from the rooftops about the need to curb gold consumption but Indians’ insatiable appetite for the yellow metal has opened the most obvious route.

Gold smuggling has doubled in the April-August period over a year before, courtesy the increase in the gold import duty and other restrictions.

Since the current financial year began in April, the consensus estimate of entities in the jewellery industry and veteran bullion analysts is that  nearly 60 tonnes of gold entered the Indian market through smuggling, compared to 30-32 tonnes in the corresponding period of the previous year.

India has raised the import duty twice during April-August, first in June from six to eight per cent and then in August to 10 per cent. This has increased the margins for bringing gold into India through unofficial channels.

Click on NEXT for more...

At the same time, the import norms were tightened. In June, the consignment route for import was banned, which made official imports costlier.

Then, in end-July, the Reserve Bank of India (RBI) opened the consignment route but linked imports to exports. However due to much confusion, official imports are almost halted, giving enough room to smugglers.

In July, a huge quantity was smuggled from Pakistan, a place where exporters have been allowed to import gold at zero duty, subject to re-export with a four per cent value addition.

After the country saw huge imports in June-July, the Economic Coordination Committee of the Cabinet in Pakistan banned imports for a month, in August.

From September, however, the ban has been withdrawn, though the import norms under the duty-free scheme and the value additions norms for exports have been tightened.While that reduced smuggling from Pakistan, other routes, including through Bangladesh and other places have opened, said a big jeweller.

He also said the road route has been the preferred one for bringing gold unofficially into the country.

Smuggled gold has been selling at a Rs 400 (for 10g) discount to official prices over the past few weeks, putting pressure on prices.

Click on NEXT for more...

However, since prices have spurted in the domestic market due to the sharp fall in rupee value, a huge flow of old gold was coming from investors who brought it at lower levels and those who wanted to sell when prices were higher last year-end but could not sell.

“In the past few days, investors have brought in huge stock to take advantage of high prices, which provided some relief to jewellers who were otherwise starved of gold as imports were virtually on halt in the last one month due to policy confusions,” said Suvankar Sen, executive director, Senco Gold Jewellers.

Though the huge inflows had resulted in gold quoting at a three per cent discount to the market price in this city, making smuggling unattractive, traders say once the rupee stabilises, smuggling could resume. In the past week, the rupee’s sharp fall has resulted in a sharp spike in prices in the futures exchanges where prices are determined, based on the landed cost of gold.

Umesh Paresh, managing director, Shree Ganesh Jewellery House, said:  “Even discounts in recycled gold, which in market parlance is known as tejabi gold, have widened to 1.5 per cent of pure gold prices.” This is also why the spot market is trading at huge discounts.