Gold Smuggling was a popular business in 1970s and 80s when importing gold in India was restricted. However, the business lost its lustre in the post liberalisation era, as importing gold officially became easy. But smuggled gold is back in demand again nowadays, due to stringent import restrictions. While Indian Government has been successful in reining in Current Account Deficit (CAD) by slashing gold import bill; it has achieved little success in discouraging smuggling of gold. Over last 3 financial years, smuggling activity of gold has risen about 14 times and has also left behind smuggling of narcotics. As per the estimate of the World Gold Council, around 150-200 tonnes of gold was smuggled annually in India. The official gold demand is pegged at about 900 tonnes. Despite all the curbs, demand for gold has witnessed a rise of nearly 13% in the current fiscal. This has made smuggling a profitable business again. The Government now has tightened the gold import norms further.

What will change now?
At present, any passenger of Indian origin or having a valid passport can bring in upto 1kg of gold by paying applicable duty on such imports. Passengers coming through green channel (those who are not carrying any dutiable goods) can bring jewellery worth (upto 1 lakh) in case of a female passenger while upto Rs 50 thousand in case of a male passenger. This limit however, doesn’t include the import of gold bars and coins. With new norms coming in effect:
 

• Now passengers will have to give reference of the engraved serial number of gold bars in the baggage receipt
   
• Travellers will have to declare item wise details of ornaments and jewellery with the baggage receipt
   
• Field officers will now actively interrogate passengers to ascertain source of funding and may also keep a track of details such as people responsible for booking tickets, payment of duty in foreign currency among others
   

Would smuggling activity go down?
PersonalFN believes it is unlikely that smuggling activity will be affected significantly although the new measures may discourage smugglers to some extent. PersonalFN also believes, the smugglers have been using new tricks and outsmarting officials posing them new challenges every day. Earlier, the route of smugglers was quite predicted, Dubai. But now smugglers come from across countries and across economic classes. There have been cases evidenced where high profile diplomats were engaged in smuggling.

PersonalFN is of the view that, the law has not been powerful enough to discourage smugglers who use plenty of available loopholes and literally make a mockery of law. For example, a custom officer cannot arrest a person if the confiscated gold is worth less than Rs 50 lakh. Further, it’s a bailable offense. There has to be a clear demarcation between those who willfully breach the legal provisions and try to source in gold by illegal means, and those who unknowingly breach the law. People breaching the law willfully should be punished more severely. More awareness needs to be created among flyers. Moreover, the possibility of people in custom services having nexus with smugglers can’t also be ruled out otherwise 14 time increase in smuggling over last 3 years is unimaginable.

One of the most influential economists of 20th century, John Maynard Keynes had once termed huge appetite of Indians for gold as an "uncivilised and wasteful habit". To an extent, this view was shared by the Finance Minister P.Chidambaram as he requested Indians to cut down their investments in gold. PersonalFN is of the view that, people invest in gold for two reasons, they don’t trust capital markets and gold provides them hedge against the risk of inflation. PersonalFN believes, only 10%-15% of your portfolio should be exposed to gold. Investment in gold is not risk free. PersonalFN believes, asset allocation is an important area of any financial plan and you shouldn’t ignore it.

Unrestrained demand for gold encourages smugglers. If buying of gold is rationalised and standardised, smuggling will automatically be discouraged. Should curb on gold imports stay longer, smugglers would be busy in meeting the demand illegally.

Add Comments