Gold smuggling may rise due to unemployment, cheaper price in neighbour countries: Industry

Kolkata: Gold smuggling in India may increase as a number of people rendered jobless owing to Covid-19 may turn to this route to make some easy money, said industry executives.

Once travel restrictions are withdrawn, smuggling channels will become active with more direct and indirect auxiliary participants, said Somasundaram PR, managing director-India, World Gold Council.

About 120-150 tonnes of gold is smuggled annually into India, the second largest consumer of the yellow metal, according to trade estimates.

“Gold will enter through the grey route, particularly from Bangladesh and Sri Lanka, as these countries have withdrawn duty on gold,” said Anantha Padmanabhan, chairman, All India Gem & Jewellery Domestic Council. “Gold is cheaper in these countries now. West Bengal and Tamil Nadu are the two states which will see an inflow of gold through the grey route once the travel curbs are withdrawn.”

In September, the Sri Lankan government removed the 15% tax on gold to reduce the costs of the jewellery industry. The move came after the Bangladesh government decided to withdraw 15% VAT on the import of gold bars from July.

High import duty of 12.5% on gold in India and an additional 3% GST increases the propensity of fringe players to actively tap into the grey market, said traders.

On Monday, gold traded at Rs 50,898 per 10 gm (without GST) in the spot market.


Prithviraj Kothari, national president of the India Bullion & Jewellers Association, said: “Smuggling in small quantities will happen. But since the government has put in place the required infrastructure, large-scale smuggling may come down.”

While entry of gold through the grey route continues to be a matter of concern to the trade, an increase in demand is expected in 2021.

“As the shock element of the sharp price increase from Rs 32,000 per 10 gm to Rs 55,000 per 10 gm in less than two years wanes, consumer expectations, shaped by many intervening events, tend to get reset about an acceptable range,” said Somasundaram. “Any softness around Rs 50,000 for 10 gm will be viewed as a compulsive buying option. As life returns to normalcy with the untiring efforts of the government to bring a vaccine and other modes, and as socio-economic activities resume in full swing, it is reasonable to expect a sharp spike in demand for gold.”

Such a phenomenon was witnessed after a sharp drop in demand to 642 tonnes in 2009 following the global financial crisis, said Somasundaram. Thereafter, 2010-2013 saw demand peak to an average of 975 tonnes despite prices rising for a significant part of that period. “Next few years following 2020 will likely see a similar trend,” he said.