Gold smuggling into India has surged recently, driven by rising prices and the upcoming festival season. This increase has come despite a previous drop in smuggling activities following a significant reduction in import taxes.
Spike in Gold Smuggling Ahead of Festivals
The government had reduced import taxes on gold from 15% to 6% last year. However, officials from Customs and the Directorate of Revenue Intelligence (DRI) now report that smuggling has intensified in recent weeks, particularly at airports across India.
With key celebrations such as Dhanteras and Diwali approaching, demand for gold traditionally peaks. These festivals encourage gold purchases, considered auspicious in Indian culture, making it a prime time for smugglers to operate.
Record High Prices and Supply Constraints
As of mid-October, gold prices reached a staggering 128,395 rupees per 10 grams, reflecting a 67% increase this year. Smuggling operations have become more appealing as the profit margin for ditching the 6% import duty and 3% local sales tax now exceeds 1.15 million rupees per kilogram.
- October 2023 price per 10 grams: 128,395 rupees
- Annual price increase: 67%
- Profits for smugglers: over 1.15 million rupees per kilogram
- Premiums charged by dealers: up to $25 per ounce
A Mumbai-based bullion dealer stated that the climbing gold prices have made smuggling increasingly profitable. The allure of high payouts has led to a pronounced rise in such activities. In contrast, after the July tax adjustments, smuggler profits had dropped to approximately 630,000 rupees per kilogram.
Increasing Demand and Market Dynamics
With investors rushing to acquire gold, a supply shortage has emerged, further elevating premiums. Banks struggle to fulfill demand, resulting in inflated premiums on available stocks, which have recently reached their highest levels in over a decade.
During the previous fiscal year, government records indicated that 3,005 gold smuggling cases were documented, resulting in the seizure of 2.6 metric tons of gold. The tightening supply and soaring prices suggest that the trend may continue as the festival season progresses.
Given these conditions, illegal gold trade is likely to rise, challenging authorities’ efforts to curb smuggling operations. The impact on the market and economy remains to be seen as the festive season unfolds.
