Last year India introduced tough duties and quantitative restrictions on gold imports as part of a plan to reduce the country’s current account deficit following a currency crisis that saw a sharp drop in the value of the rupee:
A recent FT article states that many analysts had expected these restrictions to be gradually removed as India’s current account deficit fell sharply over the course of this year, but although recently elected Prime Minister Narendra Modi has taken many popular steps, his administration is focused on sound economics and improving the balance of payments, policies that they feel would be undermined by freeing up imports of non-essential commodities such as gold.
As a result, new figures released recently showed imports dropped to $7 billion in the three months to June, down from $16.5 billion in the same period a year earlier. The flip side of this coin is there is substantial pent up demand building, particularly as the festival season approaches when gold demand is at its peak. Diwali is in late October and although limited changes were made in May when certain trading houses were allowed to import more gold, smuggling is still rife on the back of a tight market. According to the FT, the World Gold Council, a trade body, estimates that some 200 tons of gold will be smuggled into India during this calendar year. That’s a lot of gold and one can only wonder at the inventive methods smugglers are adopting to bring metal into the country.
A source who works in customs at Mumbai’s international airport is quoted as saying customs personnel are screening 100% of bags on sensitive flights which suggests the activity is rampent. The Indians are a notoriously entrepreneurial people and if there is a buck to be made you can bet everyone and their grandmother is getting in on the act.
The above estimates from the WGC on the tonnage being smuggled and the official import figures balance out quite well, 200 tons is about $8 billion, or to put it another way if each individual brings in one lb that is only 30,000 journeys. For a country of over a billion people and copious air and sea links to surrounding potential gold suppliers the authorities’ challenge is almost impossible. The irony is these individuals will be paying for their gold in hard currency so the balance of payments is hit anyway, individuals are paying a premium for their gold over a major importer who will be closer to the world price. It underlines the pointless nature of governments interfering in legitimate trade, it generally ends up costing everyone more.