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Rise in customs duty may open unofficial channels
April, 19th 2012

The possibility of the movement of gold into the country through unofficial channels has increased considerably, owing to the Budget proposal to double the customs duty. However, the situation may not be as grave as in the 70s and 80s, when huge quantities of gold were smuggled into India because of curbs on imports. The modus operandi may be quite different now.

Though admitting the rise in customs duty from two per cent to four per cent may lead to some smuggling, officials downplayed the risks.
The finance ministry may not roll back the rise in customs duty, aimed at narrowing the current account deficit, as it believes the smuggling of the precious metal has considerably lost its lure now.
According to intelligence gathered by the finance ministry, unofficial gold imports would not rise to levels that could compel the government to roll back its decision.

In the late 80s and early 90s, the price of gold in India was 65 per cent higher than in other countries, making gold smuggling an enormously profitable, multi-billion dollar industry. The ban on gold imports was lifted in 1992, leading to a loss in smuggling margins.

Revenue officials said in the changed circumstances, the job of smugglers would be more difficult. Sophisticated security systems at airports and the absence of gold smuggling syndicates would make it hard for smugglers to cross the green channel undetected. The sea route is also unviable now.

At that time, there was a substantial difference in gold prices in India and abroad. But since its import was illegal, there was a premium in smuggling it. Now, gold imports are allowed and the price difference has also come down. So, it is not worth the risk, said an official.

Smugglers, however, have found ways to outsmart customs officials. One method used is to dodge customs officials by declaring bentex jewellery as gold, while going abroad. This jewellery is then dumped in the visiting country, and real gold jewellery is brought while returning to India.

Though the fastest route to smuggle gold is by air, according to unconfirmed reports, a few smugglers are trying to enter India from neighbouring countries like Nepal and Bangladesh. It is because of this, it is believed, gold sells cheaper in cities such as Gorakhpur, which are close to the border.

When the gold transactions are not declared by smugglers, the money is exchanged through hawala transactions. Also, in a few cases, if the gold import takes place in Delhi or Ahmedabad, using legal papers, these are then taken to places where it is sold unofficially, with the official papers destroyed.

Gold seizures in April-December 2011-12 stood at Rs 56 crore, a huge jump from Rs 9 crore in 2010-11. The seizures recorded in 2011-12 may rise further when the figures for the January-March quarter are released. Revenue authorities also recorded instances of gold smuggling after the duty increase in two tranches, though they didnt see a sudden spurt in seizures.

Seizures saw a sharp increase in 2011-12. It could partly be attributed to an increase in gold demand. It is too early to say whether smuggling has suddenly increased after the duty increase, though it may increase a little in the coming months, said an official in the anti-smuggling department.

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