Vaeshnavi Kasthuril

November 11, Chennai

Gold imports in India rose as traders exploited policy loopholes to flood the market with duty-free gold.

The amount of gold seized by customs officials surged by 37.14% in FY 2024 to 4,800kg compared to 3,500kg the previous year, according to data from open government data platform (OGD), a government portal for open data.

The duty-free tariff preference (DFTP) and free trade agreement (FTA) loopholes have facilitated “legitimate smuggling”, a practice that legally bypasses tariffs through countries such as Tanzania, according to an August 2024 research report by IIM-Ahmedabad.

Traders avoid the 15% import duty on refined gold in least developed countries (LDC) including Tanzania by importing alloys in the form of gold doré at zero duty. Gold doré imports from Tanzania have risen over the years.

Customs is addressing the issue of traders misusing policy gaps to smuggle gold, said Praveen Jindal, deputy commissioner of Mumbai customs.“The real challenge lies in closing the loopholes within the policies”.

The India-ASEAN FTA is also a loophole for traders. They import duty-free gold components like clasps and hooks from Indonesia. The components are then remelted into pure gold in India.

Customs seized over 3,481kg of gold under this FTA, representing a loss of Rs.1,947 crore in duties, said the IIM-A report.

“It is very difficult to strike a balance as tightening the policy too much will open new avenues for smuggling gold”, said P.V Ramanan, retired special counsel at the Directorate of Revenue Intelligence.

In 2017, gold imports from South Korea surged from $70.5 million to $339 million from July to August as traders exploited the India-South Korea FTA by reclassifying high-purity gold as “platinum alloys,” avoiding higher tariffs. “No such cases get decided in less than ten years in India, whereas it takes four to six weeks in the UK,” said Ramanan.

“The slow pace of India’s judicial process hinders our ability to effectively address these loopholes,” he said. “Higher gold imports lead to higher current account deficits,” said the spokesperson of World Gold Council(WGC), India.

This can lead to a depreciating value of the rupee which can increase the cost of imports and eventually lead to inflation. India is currently the largest holder of Gold in the world according to the WGC. Calls and emails to the Gem and Jewellery Export Promotion Council (GJPEC) did not elicit a response.