Surging gold prices in India are keeping customs officials on their toes. Illegal inflows have jumped after the Indian government increased import taxes in July and prices surged to record highs in September.
Customs officials have arrested people for attempting to smuggle in gold by concealing it in bags, clothes and their rectums. On one flight alone, officials caught 30 passengers trying to smuggle in 7.5 kilograms (16.5 pounds) of gold into Chennai.
“The propensity to smuggle now is very high because every time you increase the tax rate, you give that much more incentive to smugglers,” P.R. Somasundaram, managing director for the region at the World Gold Council, said in an interview. “So it will continue like this unless measures are taken by not just the government but also the trade which shares an equal responsibility to obliterate the grey market.”
Gold in India touched a record high of 39,885 rupees ($563) per 10 grams in early September on higher import taxes and as the U.S-China trade conflict and looser monetary policy boosted global benchmark spot prices. While bullion has since retreated from the all-time high, it’s still up 20% this year.
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Smuggled inflows of gold may jump 30% to 40% this year to 140 tons and rise more in 2020, N. Anantha Padmanaban, chairman of the All India Gem and Jewellery Domestic Council, said. It could also constitute a bigger percentage of India’s demand as official imports decline, rising to as much as 14% this year from 12% a year earlier, according to the WGC.
A previous spate of smuggling occurred after India, which imports almost all of its gold, increased the tax three times in 2013 to control a record current-account deficit. Illegal inflows peaked at 225 tons in 2014 as smugglers attempted to bring in bullion, including via planes and trains.
In just the two months of September and October this year, nearly 40% more gold was seized than the same period in 2018 from airports, railway stations and border states, data on the Directorate of Revenue Intelligence’s website showed. Data on the website is available only for the last four months of 2018, limiting year-on-year comparisons.
There has been a jump in the smuggling of gold into India from China, Taiwanand Hong Kong, the DRI said. The trend suggests smuggling syndicates are using e-commerce platforms and couriers to smuggle gold into India by hiding it inhousehold and white goods, it said.
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“The higher import tax has led to not only the people who regularly smuggle gold to smuggle in the metal but it has encouraged even the lay man to go abroad and get some gold for their own consumption or to make money out of it,” All India Gem and Jewellery Domestic Council’s Padmanaban said by phone.
Bullion is also increasingly being smuggled in from countries bordering India, including Nepal, Bhutan, Myanmar, China and Bangladesh.
“The government needs to bring down the customs duty and also allow jewelers to be a part of the gold monetization scheme so that the idle gold with people comes into the market and we can cut down on imports,” Padmanaban said.
