Seizure of gold likely to be 2 ½ times more from last year.
By R. Chandrasekaran
CHENNAI: The government and the Reserve Bank of India’s recent efforts to limit the import of gold have made smugglers to have a field day in the first quarter. This is not surprising considering that analysts and experts were expecting such a possible scenario if the policy makers chose to curb gold imports.
The Indian government increased the excise duty on gold to eight percent from 4 percent recently. But nearly one and a half years back, the import duty on gold was only one percent. The high import duty seems to have ensured brisk business for smugglers. This is quite evident from the way smuggled gold has been seized during the first quarter of the current fiscal year.
For the period between April and June, the government had seized smuggled gold worth Rs.598 million. This is 3.65 times more than Rs.128 million recorded only in the year ago period. The volume could have been higher since the average gold price dipped 6.6 percent during the June quarter. This comes after nearly 20 years of lull in gold smuggling activities.
For the fiscal year ended March 2013, the yellow metal seizure doubled to Rs.993.4 million. What is more intriguing is that government officials estimate gold smuggling to grow 150 percent to approximately Rs.2.50 billion in the current fiscal year.
A report in Business Standard quoted an official, who did not want to be identified, as saying “This year, in the first quarter itself, we have seized almost 60 per cent of what was seized in full last year. If the trend continues, this year’s total seizure could easily be two-and-a-half times of last year.â€
In an effort to control further deteriorating current account deficit, the government and the RBI took various measures including advising the banks not to sell gold coins. The Finance Minister P Chidambaram also discouraged investors from buying gold in the current scenario. After witnessing import of over 150 tons of gold in April and May, gold imports dropped to just 31 tons in June. Even this decline was termed as a result of significant rise in smuggling of gold.
The finance ministry is trying to fix the problem of illegal method of importing the yellow metal. However, it is not likely that the government will reverse its recent decisions until the inflow of USD improves. There is belief that the authorities have caught only a maximum of 10 percent of illegal import of gold. The rest would have naturally sneaked into the country.
To contact the author, email to rchandrasekaran@americanbazaaronline.com