High import duty brings gold smuggling back

The recent seizure of gold at the Mumbai airport by the customs department has confirmed suspicions that smuggling of the metal has shot up through channels that are a far cry from the site of dhows and speed boats that lurked the shore lines of Gujarat and Maharashtra till the early nineties.

Gold smuggling has become attractive again after the government this year raised the duty on its imports to rein in a widening current account deficit (CAD). In Budget 2012-13 the duty rates on all types of gold imports were doubled.

The move has halved the legitimate import of gold into India but has given a huge spurt to its smuggling in this fiscal. This has reversed the phenomenon that was almost wiped out in the 90s, officials of the department claim.

Finance ministry data shows Rs 942 crore worth of gold was seized from more than 200 cases of smuggling during the April-July period. This was a 272 per cent rise from the level of the previous year. That too was an aberration. Between 2006-07 to 2010-11, gold seizure was almost nil, clocking an average of less than Rs 5 crore a year, as per directorate of revenue intelligence data.

The seizure of the gold by the Mumbai airport officials was of course from the usual suspects, passengers on flights from Singapore and Dubai.

Just set this off against legitimate gold import in this year. It stood at 220 kg during the April-September period of 2012-13 against 407 kg imported in the same time span a year ago. In value terms, it stood at $16.47 billion during the same period as against $30 billion during the corresponding year-ago period. With CAD ó total imports of goods, services and transfers minus total export of goods, services and transfers ó widening to an all-time high of 4.2 per cent of GDP in 2011-12, a worried government raised basic customs duty (BCD) on standard gold bars and platinum bars from 2 per cent to 4 per cent while on non-standard gold, it was doubled to 10 per cent in the current year's Budget. BCD on gold ore and concentrate was also raised to 2 per cent from 1 per cent to reduce gold import.

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