India Gold
Indians' timeless obsession with gold has set up a parallel sourcing and selling route. This has now come under the scanner, and hopefully for long. Image Credit: Reuters

Dubai: What does gold mean for Indians? Clearly, It’s become more than just a need.

It has for years fuelled a multi-billion dollar “parallel” industry, where gold – mostly in the form of bars and coins – are sent with passengers from the Gulf into Indian airports with the hope that they will be able to evade all the checks. And then these bars and coins are passed on to middlemen and other conduits before they finally end up with the actual buyer.

This movement of gold is now getting a check … and it will burn deep. India has now launched a far-reaching investigation into gold smuggling, first centred around airports in the south Indian state of Kerala and, then, likely to be extended to other entry points into India. This is because it’s not just being treated as a financial crime, but also the possibility that the gold being brought in without any documentation is actually being used to fund terror activities against the Indian state is also being looked into.

Even then, some people in the “business” still haven’t got that message.

Brazen attempts

Despite intense customs checks on all incoming flights into Kerala over the last 10 days, three passengers on repatriation flights from the UAE still wanted to try their luck on Monday. They were caught with 1.5kg of gold. This can lead these people to years of legal hassles, with the real risk of doing jail time.

And for what? These three would have been the cheapest links in the chain, and would have been paid between Rs20,000-Rs50,000 (Dh982-Dh2,456) for all the risk they took. But for the kind of trouble they are in right now, that money wouldn’t get them far.

Pricing gap

As long as India maintains a double-digit import duty on all gold imports, it will be at a pricing disadvantage compared to the UAE and other Gulf markets. It’s this advantage that the parallel trade has always exploited to its benefits. Once gold is brought into the country through illegal means, the seller has a wide set of pricing options to offer a buyer … and still remain way below the official showroom price in India.

Under cover

Industry sources say that the repatriation and chartered flights would have been the perfect cover to get gold moving into India, especially as airport authorities were more intent on maintaining health and safety protocols. “There would have been loose monitoring of baggage and there were other technical constraints,” said an official at the Thiruvananthapuram airport.

It won’t be business as usual

Getting gold into India from the Gulf states by avoiding customs checks had been going on for decades – but right now, it can prove extremely hazardous to health. More so as the issue has escalated into a full-blown international crisis after Indian investigation agencies on Monday confirmed that there were multiple instances of gold being brought into Kerala using forged seals of the UAE consulate in Thiruvananthapuram, the state capital.

They were caught for a consignment of 30 kilos and with a street value of Dh6 million plus. But it’s only part of the 100 kilos and more that got channeled into India through illegal means.

Some of the perpetrators of this particular racket are in custody and more will come under the investigators’ net. One of those in custody is a former UAE resident, Swapna Suresh, who has been named as the principal link in bringing gold into India, using the cover of the UAE Consulate.

The UAE authorities have also launched a simultaneous investigation into the matter at their end, thereby putting a squeeze on all activities to move gold from here to India.

Appetite for metal

Joy Alukkas, chairman of the gold and jewellery network that bears his name, said he was not too surprised by the turn of events.

“For far too long, the 'parallel' trade in gold was allowed to flourish in India,” he said. “And it was happening because with Indians, gold is a way of life. There may be declines in consumption patterns at some points, but gold will never disappear as a choice. No wedding is complete without it.

“It’s in the Indians' DNA – and that’s why I don’t buy the argument that young Indians will not favour gold.

“But the gold industry in India needs to be fixed – too much of it is still in the unorganised sector, and that’s where the problems are. I hope the exposure of the latest smuggling racket will not be limited to a political drama.”

Why source gold from the UAE/Gulf?

The retail price of gold in India carries a 12 per cent import duty, and that in short explains why bringing in gold from the Gulf offers smugglers such a lucrative payoff.

The spike in smuggling attempts is taking place even with gold prices now at their highest point since 2011. It was only recently that gold price shot past $1,800 an ounce, once again proving its status as a safe-haven asset.

“That 12 per cent creates an immediate cushion. Even if the smuggled gold is sold at a 6 per cent margin, it’s still a windfall,” said a leading jewellery retailer in Dubai. “It’s an organised racket – the gold brought into India already has a confirmed buyer. No one is going to take these kind of risks, bring the gold into the country and then waiting for a buyer to turn up.

“Once it reaches the buyer, its shape and form can be changed to suit any purpose.”

These bars carry an emotional weightage with Indian shoppers. India's higher import duties have benefitted the parallel channels bringing gold into that country. Image Credit: Pexles

A “parallel” currency

What has caught India’s investigation agencies’ attention is the use of smuggled gold as a currency by itself. Transactions could be sealed by dealing in gold bars and eschewing cash altogether. That would have meant the removal of bank transfers and such sundry details.

The NIA (National Investigation Agency) is looking into whether gold as a currency was being used to fund possible terror-related activities.

"It's in the Indians' DNA," says Joy Alukkas of this fixation with gold. Image Credit: Gulf News Archive

Who usually gets this gold?

Apart from the NIA, some of India’s top investigative agencies are on the trail. Their aim is to home-in on the actual buyers of the smuggled gold.

“People who get caught at the airports are just the mules – they take on most of the upfront risk,” said a senior police officer with the Kerala state government. “The central agencies now have a wide mandate to pursue both the source of the gold as well as potential end-users.

“That’s what’s different with this investigation – if all goes well, it will not stop with capturing the in-betweeners.”

Lie low... 

Gold industry sources say that a combination of higher customs’ scrutiny and sky-high prices of gold will mean a marked decline in pushing gold into India through parallel routes. But for how long?

“As long as demand exists in India, someone or the other will try to get it into the country and sell below the official rate,” said a jewellery retailer. “Indians’ craze for gold will not end.”

Outdated restrictions
There are restrictions on the value of gold that can be brought into the country. An Indian woman expatriate can bring Rs200,000 worth of gold jewellery back into the country, while the limit for a male passenger is half that. (The same “benefits” apply to all Indian nationals who have been out of the country for six months at a stretch.)

"At current gold prices, these restrictions are extremely dated," said a jewellery retailer. "So, what's left is outsized demand and very few official channels to meet that demand at a reasonable retail price."