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A woman tries on a gold necklace at a jewellery showroom in Mumbai. India’s penchant for gold and high duties makes it a gold smuggling destination. Photo: Reuters

Poor Indians targeted by smugglers to sneak in gold in belts, underwear, computers

  • India’s penchant for gold and high duties has made it a gold smuggling hotspot, with over 3,000kg confiscated in the first 11 months of 2022
  • Smugglers use mules or underprivileged people as carriers, with most of the smuggled gold coming from the Middle East

India’s appetite for gold is legendary and goes back centuries, but that craving for the precious metal, along with high import duties has turned the country into a prime destination for smugglers, with one jewellery executive calling for more regulation to prevent the illegal trade from flourishing.

Indian investigators have also found links between local politicians, officials, gold traders, and the international gold mafia. In February last year, 43-year old Bangalore resident Raees Ahmed Ikkeri was arrested for aiding and abetting an interstate gold smuggling racket, through various ports in the country.

In another smuggling racket, gold worth 150 million Indian rupees (US$1.84 million) was seized from the diplomatic baggage of the UAE consulate at Thiruvananthapuram airport in Kerala in July 2020.

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Several people were arrested in connection with the matter including M Sivasankar, the former Principal Secretary to the Chief Minister and Swapna Suresh, an ex-employee of the UAE consulate in Thiruvananthapuram.

Gold seizures by enforcement authorities reached a three-year high confiscating 3,083kg of the precious metal in the first 11 months of 2022.

The Canada-based non governmental organisation IMPACT estimated that 25 per cent of gold in India, around 200 to 225 tonnes come through illegal channels.

Many people use mules or underprivileged people as carriers.

In December, in Kozhikode, Kerala in South India, Shahla, a 19-year-old from Dubai, was found to have 1,884 grams of gold worth 10 million rupees hidden in paste packets in her undergarments.

She was reportedly handed the gold by a “friend” and paid 60,000 rupees to be a carrier.

Indians flock to jewellery stores to buy precious metals for the Diwali festival. Photo: Bloomberg

Most of the smuggled gold comes from the Middle East, where the quality of gold is supposed to be higher. The Middle East also accounts for almost 75 per cent of gold imported into India.

Many Indians from Kerala work in the Middle East, so airports there are smuggling hotspots. The way gold is being smuggled into the country to bypass the high customs duty, is getting increasingly inventive, and difficult to detect- from hidden in linings of luggage and in shoes and specially designed belts, to inside computers and mobile phones and even in body crevices.

Gold is also smuggled in as powder, mixing it with iron and potassium to escape detection. According to estimates from the World Gold Council, the seizure rate of illicitly traded gold in India is only about 2 per cent.

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India is the second largest consumer of gold in the world after China, with consumption of 797.3 tonnes in 2021 according to the World Gold Council. India’s production of gold is negligible and imports almost all of the precious metal in the form of bars or refined gold.

The Gold Control act which was in force between 1968-1990 banned Indians from owning gold bars or coins and this led to a huge black market. In the 1990s economic reforms repealed this act and put a cap of 450 rupees per 10g of gold, bringing smuggling to a halt.

Rates started rising around 2013, with a change in government policy and removal of the cap on gold imports.

India now allows just 20g of gold for men and 40g of gold for women to be brought in legally, with the rest taxed at a rate of 12.5 per cent, a GST of 3 per cent and 5 per cent on making gold ornaments.

Gold’s importance to Indian families

Demand for gold in India is also high because it is considered a valuable inheritance and way to preserve wealth across generations. It is given to daughters at weddings, and for the birth of a child and joyous festivals like Diwali, when people spend a lot on new clothing and expensive jewellery. Weddings account for almost 50 per cent of the annual gold demand in the country.

“Gold is always viewed in India as something eternal that you should bequeath to your children,” said Shruti Kumar, 55, an advertising professional in Chennai.

Smuggled gold in India moves mainly into the hands of small scale jewellers who make ornaments, which then enters the legalised trade channels. Gold hallmarking, which certifies the purity of gold and strengthens the trust of consumers in the quality of gold in India, was made mandatory in India in 2021, but some 40 per cent of the gold traded lacks hallmark.

Unless Indians start buying hallmarked gold only from reputed jewellers with a bill, smuggling cannot be plugged
Anisha Cherian, teacher

“High import duties and prevalence of fake hallmarking centres and unregistered manufacturers continues to encourage smuggling resulting in a 5 per cent difference in gold pricing,” says Arjun Varadaraj, executive director at Chennai-based NAC Jewellers.

According to Varadaraj, a two-way approach is required to stop smuggling. The government, along with reducing duties, must also prevent fake hallmarking by auditing licences.

Anisha Cherian, 34, a teacher in Kerala, says: “Unless Indians start buying hallmarked gold only from reputed jewellers with a bill, smuggling cannot be plugged.

The reason for continued smuggling is that this contraband gold circulates to small jewellers and many Indians still buy jewellery without bills from these so called “family jewellers”, Cherian added.

With the price of gold expected to reach 60,000 rupees per 10 grams in the Indian market by 2023, many Indians argue that higher taxes only incentivises smuggling of gold. In a recent report released by Parliament that showed Myanmar becoming the main transit corridor route, Finance Minister Nirmala Sitharaman said that “smuggling of gold ‘seems to have its own cycle’ irrespective of high or low customs duty”.