In Retrospect

A Golden Loot

Steep duties on gold in India and simultaneous lower prices in foreign markets have made the yellow metal a most lucrative contraband for illegal smuggling – and, this wide network of deceit and illegal profiteering is today flourishing abundantly

A gang of masked men delicately lift crates stacked with gold bars and unload them at the docks in the dead of night; at the end of the country, another group of notorious bandits trudge their way through forested border territories carrying chests packed with gold biscuits on their shoulders. If 1970's Bollywood was a true reflection of reality – gold smugglers in India would have, at least partially, replicated the given description. Sadly for enforcement authorities, smuggling contraband into the country has evolved many folds – nurturing a sophisticated trade with robust networks running across national borders.

Earlier this year, after Finance Minister Nirmala Sitharaman announced the government's plan to increase import duty on gold after six years to 12.5 per cent, fears that the added import duty would make gold smuggling more lucrative hit the industry once again. Soon, industry bodies and gold councils across the country began predicting that the market for smuggled gold, which currently stands at around Rs 70,000 crore, could grow to as much as Rs 1 lakh crore.

The game has altered significantly since 2013, when the UPA-II government's hike on import duty on gold – taking it to 10 per cent – had paced gold smuggling. While the decision was reasoned as, first, protection for domestic jewellers and artisans, and second, to balance a record current-account deficit, the final jump to 10 per cent import duty cocooned a new generation of smugglers. Efficiency became key to manage volume while escaping detection was the most-prized skill of a top smuggler. With the option of trafficking gold through air also gaining precedence, smugglers decided to opt for a model that had become popular with drug smugglers (mostly heroin and cocaine) and soon, kingpins began devising equipment that could conceal smaller amounts of gold in personal baggage or could be strapped directly onto the person.

The underlying idea was that smaller amounts of contraband meant efficient smuggling. As a result, the number of "carriers" jumped significantly; they came in with small amounts of illegal gold hidden in creative ways and significantly increased the amount of gold being smuggled while diminishing the probability of detection.

The smugglers' way

To counter the steep local gold price with an added tax on importing, smugglers realised that if one were to buy gold from overseas at cheaper rates and then avoid customs duty, the profit margin would increase dramatically. Now, the higher the tax rate on gold imports, the higher is the pay-off for those who avoid duties and take their product to the grey market.

For example, in 2013, when the import duty was hiked to 10 per cent, reports showed around 150 tonnes of gold being smuggled into the country, up from eight tonnes in 2012. In 2014, the number rose to 225 tonnes and while the amount of gold smuggled since then has somewhat stabilised, India still receives about 100 tonnes of illegal gold in a year, by conservative standards.

With the import duty on gold now at 12.5 per cent, in addition to 3 per cent IGST, the profit margin for smugglers has jumped to around 15.5 per cent (at least). The current price of gold in India stands at around Rs 39,000/10 gm. If one was to buy gold from Dubai or Myanmar, where the metal is cheaper by at least Rs 400-500 per gram, and then bring it into the country by evading the 15.5 per cent taxation, they could sell at a price lower than the Indian grey market and still churn sizeable profits by attracting consumers and disrupting gains for legitimate jewellers, whose sale prices would be expensive for consumers, even if they sold their product at cost.

According to government data, gold worth around Rs 99.3 crore was smuggled into India between 2013 and 2014. Since then, the amount of yellow metal being smuggled into the country has increased exponentially, with a slight dip observed in the period between 2017-2018, when gold worth over Rs 950 crore was brought into the country illegally.

Even as gold seizures made by customs officials have increased consistently since 2013, from about 400 kg to about 4,000 kg at the end of the last fiscal, estimates from the All India Gem and Jewellery Domestic Council put the amount of gold being smuggled into the country at up to 100 tonnes. In fact, Directorate of Revenue Intelligence (DRI) officials have also said that with a total recovery of up to 1.5 to 2 tonnes a year, enforcement agencies manage to detect only 5-10 per cent of the total gold being brought into India illegally.

How, why & who?

According to DRI officials, most smugglers choose to carry gold through air or land routes, with sea routes reserved only for certain parts of the border. As most of the smuggled gold originates from Myanmar or the Middle East, authorities have consistently found cities like Mumbai, Kolkata, Delhi, Chennai, Kochi and Trivandrum emerging as top entry points. Kolkata can be accessed through the borders of states like Nagaland and Manipur, whereas Mumbai, Chennai and Kochi have witnessed increasing gold trafficking due to the frequency of flights to and from Middle Eastern countries.

As DRI has investigated, flights have become a preferred way to bring in contraband, and carriers are being strapped with specially-tailored waist-belts designed to hide gold biscuits. Another common trick is to pick international flights which have a connecting domestic flight operated by the same airlines.

In these flights, often operated by Air India, the aeroplane first lands at a metro city in India, like Mumbai, Delhi or Chennai and then the same aeroplane continues to a different city. On such flights, carriers can be seen flexing their creativity, with smugglers often hiding the gold somewhere on the aircraft and then deboarding for immigration. They would simply have to pick it up from the aircraft once they reach the final destination or have another passenger pick it up. Some cases have also witnessed the involvement of airline staffers, who sometimes themselves act as carriers, given the security clearances they might enjoy at airports.

On land, established smuggling routes in the North-Eastern states have aided gold smugglers. The routes, once used for supplying illegal arms to militants in the region, are now being used to smuggle large quantities of gold from Myanmar, another country where the metal is priced moderately. Customs and DRI officials both insist that it is becoming more difficult to detect the origin of the gold as smugglers are now melting and distorting the gold to mask its place of origin, making the task of identifying the smuggling network more challenging.

Financing the grey market

Nowadays, smugglers often operate by bringing gold from countries in the Middle East to India and then drawing foreign currency back to these countries – creating an effectively closed-circuit racket that also launders illegal wealth used to finance the smuggling ring and other dubious activities.

In one such case earlier this year, DRI had arrested a Dubai-based Indian businessman, who was allegedly controlling up to 70 carriers and had managed to smuggle 70 kg gold in just one month and also returned home with falsely earned foreign currency. As is evident, it can be quite easy for kingpins to smuggle gold into the country and send illegal profits out of the country through the same carriers who are running the show on either side of territorial borders.

While officials at the Finance Ministry have maintained that the move to raise import duty on gold had been made in consideration of its effect on the grey market, the hiked import duty openly allures gold smugglers with juicier profit margins. In fact, customs officials seized more than 1,190 kg smuggled gold in the April-June quarter of this year, registering an increase of 22.3 per cent compared to the same quarter last year.

Gold and jewellery councils have been left off-guard by the import duty hike, and the industry cannot seem to allay fears of a subsequent rise in smuggled gold. Several jewellers in Mumbai and Delhi predict that the pending expansion of the underground gold market will severely impair the industry – affecting revenues, credibility and jobs in the sector.

And, of course, given the amount of gold that is being smuggled into the country, another industry concern is growing – the proportion of this smuggled gold ending in exports out of the country is unknown and worrying.

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