There has been a 446 per cent increase in gold smuggling into India during the last one year if data released by the Directorate of Revenue Intelligence (DRI) is anything to go by. Compared to 40 cases and a seizure of gold worth `44.80 crore it registered last year, this year the DRI has registered 148 cases of smuggling and seized smuggled gold worth `245 crore. Evidently, smuggling has been spurred by the fact that the government hiked import duty on gold thrice last year, eventually up to 15 per cent, to curb the demand for the precious metal and to rein in a widening current account deficit (CAD). Now that there is an improvement in CAD, it is time the government seriously considered easing curbs on import of gold. Fears that the import bill will surge back to $50-60 billion levels if restrictions are eased are misplaced.
The unprecedented demand for gold in 2011-12 was triggered mainly by investors chasing high returns, due to the global downturn, double-digit inflation and poor returns from other financial assets. The circumstances today are different. Gold has halted its 12-year bull run and delivered losses to investors in the last one year. Also, the artificial curbs on gold imports haven’t really had the intended effect on traditional jewellery buyers. It is clear that a sizeable portion of the jewellery trade’s gold needs, valued at anywhere between $4 and $6 billion a year, are being met by smuggled gold. Against this, easing the restrictions on gold imports in a phased manner can have many positive spin-offs. It will benefit consumers, revive the jewellery industry and bolster customs revenues.
In such a scenario, there is little point in keeping the import duties so high that there is a premium on smuggling. Customs officials have been quoted as saying that currently, most of the people caught smuggling gold are couriers working for organised gangs operating from Hyderabad, Kasargod, Karnataka and Mumbai. A well-calibrated policy of easing restrictions must be undertaken so that gold smuggling ceases to be so lucrative.