Why is gold smuggled to India

Why Is Gold Smuggled to India?

War. Smuggling. International intrigue. Why is gold smuggling such a hot international issue? Some people say that gold has always been connected to the more sinister side of international relations.

Many governments buy gold for central banks and over the years this often means getting access to it through illegal means such as smuggling.

You might think these stories of intrigue are a thing of the past. We now have efficient international customs law that helps bring gold from across the world into your living room without costing you much. While there is a well-known issue with fake gold being created, it does not impact the 1 oz price of gold. However, in India things are not quite so stable. The BBC reports a record amount of gold is being smuggled into India these days.

The country already sees about 700kg of gold smuggled in every day. Unfortunlty, recent years have brought a real spike, particularly in air traffic smuggling.In fact, an Emirates flight attendant was caught trying to smuggle 13 kg of gold under her dress. So what is at the root of this illegal activity?

So why is gold smuggled to India these days? Here are five key reasons.

1. India is the Biggest Consumer Country for Gold

As we discuss elsewhere, Indian families are the biggest consumers of gold as a collective entity. Just under 24,000 tonnes of gold is owned by Indian families, and the consumer demand has been stronger recently when the gold price dipped.

One expert predicted the market for gold jewelry would increase 50-60 percent in the early months of 2018.

Q3 2017 Global Gold Demand

  • Other Countries
  • China
  • India

 2. Buying 24k gold in India is hard.

A lot of the gold being smuggled into Indian comes from Dubai or other Asian countries with better quality gold. A lot of the domestic gold in India is nowhere close to 24-karat and thus is not as sought after. In fact, fake gold is a serious problem as in many countries.

The smugglers know that Indians will be looking to buy the best gold they can no matter where it is from, and they stand to make a nice profit by subverting the authorities.

3. Increases in Import Duties

The Indian government has recently initiated a 15 percent duty hike on gold jewelry imports. An added cost of this size has made the reality of smuggling much more appealing. While gangs are usually more organized and able to oversee huge smuggling operations, Indian officials are also catching many individuals. These people simply refuse to pay the import duty, either for personal purchase or else re-sale. It makes sense, given most of their profit in eventual sale is going to the import tax.

The tax's merits are worth debate and that's exactly what Indian officials are doing. In fact, many of them recall the 1990s when the exact same issue came to pass. In trying to bring in some revenue to cover debts and bring a halt to the strong demand for gold jewelry, the government has only produced conditions for more illegal activity.

4. Festival Season Means Consistent Demand

Smugglers can rely on this market being strong throughout the year – but especially in the fall, when the Diwali Festival occurs. An especially joyous time of year in India and Nepal, many people spend on new clothing, home furnishings, and expensive gold jewellery.

In fact, people that would never buy gold for daily use will buy gold for religious festivals. One festival in particular, Dushera, is characterized by the purchase of gold itself.

5. It is Easy to Smuggle

Part of why smuggling continues to happen is due to a lack of oversight. Indian government regulations for checking baggage and following up on suspicious travellers is not as thorough as it needs to be.

As long as travellers are able to stuff gold in planes and make it across the border there will be an issue. However, signs of change are positive. Recently, according to Fox News, 29 men were caught hiding gold in their rectums trying to fly into a southern port.

To conclude, there are many answers to why is gold smuggled into India.

Arguably, of these, the biggest factors are market-driven. Gold's high liquidity and psychological prescience, make it one of the most commonly smuggled goods in the world. According to the OEC, India's roughly 50 billion in net annual gold imports are matched in effect on the trade deficit only by oil imports. Unfortunately, the preponderance of gold in Indian culture and recent regulations only ass pressure for black- and grey-market gold continue to go up.

Back to blog