India Faces Smuggling Surge as 15% Import Duty Drives Down Gold Prices by Rs 10 Lakh

The Indian government’s recent increase in gold import duty has led to a surge in gold smuggling, with illicitly imported gold being sold at discounts of up to Rs 10 lakh per kilogram. This price gap has raised concerns among industry participants, who report that gold smuggled into the country is currently available at a discount of Rs 8-10 lakh compared to domestic market prices. Much of this gold is reportedly coming from the Middle East, smuggled by passengers arriving from Gulf nations without declaration at airports.

According to Surendra Mehta, national secretary of the India Bullion & Jewellers Association, a significant amount of this gold is brought in by travelers who wear the jewelry and pass through airport green channels. Market observers have drawn parallels to the aftermath of a similar duty hike in 2013, when unofficial gold imports surged seven-fold within a year, according to the World Gold Council.

A bullion dealer from Mumbai’s Zaveri Bazar explained that the current duty structure incentivizes grey market operations. The landed cost of one kilogram of gold is approximately Rs 1.65 crore, which includes a 15% import duty and a 3% goods and services tax. The gold itself is valued at about Rs 1.40 crore, while taxes account for Rs 25 lakh. When sold through the grey market, sellers can offer gold at a discount of Rs 8-9 lakh per kilogram, securing a profit of Rs 16 lakh.

Smuggling routes are not limited to the Gulf; traders have identified Bangladesh and Nepal as additional sources of smuggled gold entering India. This activity is primarily concentrated in states like Maharashtra, Tamil Nadu, Gujarat, and West Bengal. The issue was highlighted recently when customs officials at Mumbai’s Chhatrapati Shivaji Maharaj International Airport seized smuggled gold valued at over Rs 4.19 crore from two passengers arriving from Dubai.

Experts indicate that it is too early to assess the scale of smuggling for this financial year, as the duty increase from 6% to 15% was implemented only weeks ago. Data from the World Gold Council shows a consistent correlation between changes in import duties and levels of unofficial gold inflows. Following a 4% duty hike in 2013, unofficial imports rose from about 10 tonnes in the first quarter of that year to 70 tonnes by the first quarter of 2014. Even when duties remained unchanged at 10% from mid-2013 to mid-2019, unofficial inflows averaged 34 tonnes per quarter.

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