Gold seizures saw a jump of over 103% in 2017-18 and they are anticipated to rise unabated in the future.
All that does not glitter may be gold too! As smuggling of the precious yellow metal spirals, fuelled by the well-known Indian craze for jewellery, the ‘carriers’ of gold are getting more and more innovative with their methods. They carry gold powder mixed with detergent, with soup powder and masala packets, in belt buckles, torches and just about anything that can be carried across without raising suspicion.
Indian Customs seized 3,223 kg of gold valued at Rs 974 crore in 2017-18, an increase of over 103 per cent from 1,422 kg worth Rs 472 crore in 2016-17, states the Directorate of Revenue Intelligence (DRI)’s ‘Smuggling in India Report 2017-18’. Most seizures were in Mumbai, Kolkata, Chennai and Delhi-deemed the major consumption centres of gold.
Latest data suggests that in 2018 alone, up to November, the Customs seized 2.63 tonnes of gold. Much of the smuggled gold comes from the Middle-East, mainly the UAE and Saudi Arabia, Singapore and Sri Lanka. Gold prices have steadily risen amid ongoing geopolitical tension in the Middle East, continuing trade conflict between the US and China and increased buying by central banks, reaching a six-year high of Rs 3,465 per gram in June 2019.
Cage of golden desire
Traditionally obsessed with the precious metal, Indians largely buy gold for weddings, religious festivals, and even adorning their gods. Rural India sees gold as the safest investment option. The yellow metal is more convenient to convert than illegal money. “For Indians, gold is much more than just a metal,” says Rahul Jain, head, personal finance and wealth advisory, Edelweiss. “Every household has a craving for gold, usually in the form of jewellery or bars and coins. The reasons for owning gold are many-religious, cultural, faith in the metal among rural and urban households, symbol of status, store value and steady price appreciation,” he said.
Where it started
Gold smuggling in India has its genesis in the Gold Control Act of 1968 which prohibited citizens from owning gold bars and coins. It also imposed several restrictions with a view to curbing gold import. This resulted in illegal gold trade and a thriving hawala (illegal) money racket to support this activity through the 1980s and early 1990s. Once the economy was opened up, the Act was repealed and smuggling lost its sheen. In 2013, the government imposed a 10 per cent import duty, and after the 2019 Budget, the customs duty has been upped to 12.5%. A three per cent GST introduced now makes gold price 15.5 per cent higher in India.
While acknowledging the spurt in gold smuggling in 2014 after the duty hike, the then finance minister,P Chidambaram, had justified the high taxation saying that the hike was “to manage the country’s balance of payment or the current account deficit”. For a long time, gold was the second largest imported commodity after crude oil and the high duty was expected to reduce imports. That, however, did not happen.
Lust for gold jewellery
How much gold is illegally coming to the country? There is no authentic data. A S Sriram, president, Tamil Nadu Jewellers Federation (representing about 25,000 traders) estimates between 100-200 tonnes and the World Gold Council pegs it at 100-150 tonnes.
According to a report by the India Brand Equity Fund, a government think tank, India accounts for 29 per cent of the global jewellery consumption. The gem and jewellery market is estimated at about $75 billion and is likely to reach $100 billion in 2025. It contributes seven per cent to India’s GDP and employs over 4.64 million people.
“The high customs duty helped a thriving parallel market and it’s a huge drain of forex. Genuine players find it difficult to survive,” said Sriram. The smugglers, however, have a field day, earning Rs 2 lakh to Rs 3 lakh per kg of gold.
Unorganised jewellery makers and small players source their gold requirements from the illegal route where gold is sold at a discounted rate. About 30 per cent of the gold requirement is met by recycling gold jewellery. Industry experts feel that 30-40 per cent of the domestic gold demand is met by the parallel market. “We have seen the size of smuggling market more than doubling since 2013,” says Vipin Raina, president, Bullion and Trading, MMTC-PAMP India.
Curbing yellow metal smuggling
Surendra Mehta of the Indian Bullion and Jewellers Association said jewellery associations have been requesting the government to reduce tax in a phased manner, thereby making smuggling unattractive. He also suggested alternatives such as bringing in household gold into the market. There is an estimated 24,000 tonnes of household gold in the country. “There are two ways to look at it. Either you (government) collect import duty or stop import completely. When household gold enters the market, it gives sufficient supplies and the need for import is eliminated. It saves foreign exchange too,” said Mehta.
Experts feel that the gold monetisation scheme, that provides an interest of 2.25 to 2.5 per cent per annum on unused gold lying in bank lockers, must be made more attractive to discourage the holding of physical gold and promote digital and paper gold.
Smuggling is not new to India; in fact, the elusive smuggler was the subject of many a potboiler in Indian cinema in the seventies and eighties. Even today, there is an air of mystery surrounding them and their methods.
Who are these people?
The key operatives are the ‘carriers’ – people who actually physically transport the gold. Typically, these carriers come from the lower strata of society and do not mind taking the risk for a quick buck. Carriers who bring gold from the Middle East and Singapore are “small fries” who get Rs 10,000-20,000 for every one kg of gold they bring into the country. They bring an average of one kg of gold per trip. Hundreds of such carriers are used daily to run these activities.
A carrier makes an additional Rs 5,000- 7,000 per trip by buying and selling imported alcohol, said one source in the know of the tricks of the trade. Even if they are caught, there is a well-oiled support system to get them legal aid. Within a week or two they are back on the smuggling route, the source said.
Women hide gold in their handbags, hair bands, decorative beading in their clothes, swallow it or even hide it in their private parts. Experts say seasoned smugglers can carry up to 2 kg of gold in their rectum. Time-tested methods such as hiding gold in TV sets, toys, iron boxes and mobile phones are normal and even passé now, sources said. The smugglers operate secretively, in a compartmentalised and hierarchical system and it is almost impossible to reach the kingpin, says one retired Customs official. DRI or Customs officials end up arresting the carrier or delivery man, who is not the real operator.
World of gold
- Gold is the fifth most smuggled item in the world, ahead of food, cigarettes, and money. Human trafficking is on top of the list
- The powerful trio of Haji Mastan, Varadarajan Mudaliar- popularly known as Varadabhai, and Karim Lala, who engineered organised smuggling in India and thrived in the Mumbai underworld, inspiring many a Bollywood blockbuster. Some notable movies based on gold smuggling and underworld life are: Deewar (1975), Nayakan (1987), Company (2002) and Once Upon a Time in Mumbai (2010). Netflix-produced television series Sacred Games (2018) is based on the Mumbai underworld and smuggling
- The infamous D-company, the organised crime syndicate headed by Dawood Ibrahim, was active in gold smuggling in his early years
- The discovery of gold nuggets in Sacramento Valley sparked the California Gold Rush, a significant event that shaped American history. The news of gold brought about 300,000 people to California from all over the United States and abroad. Yellow metal worth $2 billion was extracted from the area during the Gold Rush, which peaked in 1852
Did you know?
- It was in 3600 BC that gold was first smelted by Egyptian goldsmiths
- Around 2600 BC, the ancient Mesopotamians forged some of the first gold jewellery
- In 1223 BC, the iconic Tutankhamen’s tomb was constructed primarily of gold
- Legend has it that in 950 BC, Solomon’s famed temple was built mainly using gold
- Gold is largely responsible for creating the concept of money, giving rise to some of the first gold coins in 700 BC
- By 550 BC, Greeks had begun mining for gold throughout the Mediterranean and the Middle East
- Romans improved refining method of gold and mined gold using slaves and prison labour
- The secret of alchemy is closely related to gold, in which ancient and medieval scientists tried to convert other cheap metals into gold
- In 1717, the UK established the Gold standard for the first time in history
- The US established bimetallic (gold and silver) standard for the national currency in 1792
- Malaysia with a big Tamil diaspora, is an attractive point for kuruvis (carriers) to smuggle to Tamil Nadu
- Of late, sea routes are again being used to smuggle gold from Sri Lanka
Gold IS Divine
- India has a slew of Hindu temples with huge repositories of gold. The centuries-old Shri Padmanabhaswamy temple, Thiruvananthapuram, Kerala, is the wealthiest place of worship in the world with 1.2 lakh crore worth of gold and precious gems in its reserve, without considering its antique and cultural value
- According to Tirumala Tirupati Devasthanams (TTD), the Tirupati temple in Andhra Pradesh has over 9,000 kg of gold reserve
- Siddhivinayak temple, Mumbai, has estimated gold reserve of over 160 kg and the Saibaba temple at Nashik possess over 376 kg gold
- Can be purchased in smaller amounts and as per an individual’s budget, unlike real estate, which requires large capital
- Can be easily converted into cash in emergencies
- Acts as a hedge against risks, tending to gain in value during stressful economic times