Smugglers easily sidestep gold curbs.

MUMBAI: When Union finance minister P Chidambaram was busy finalising a policy to curb gold imports last August, a group of smugglers was preparing to manipulate regulation that posed a threat to the flourishing business.

The minister hiked import rates to 10% to curb genuine legal import to contain the country's current account deficit (CAD) but it led to an increase in smuggling. CAD is an indication of the country's trade, in which the value of goods and services it imports exceeds the value of goods and services it exports. Imports, which rose to 162 tonnes in May, dropped to 19.3 tonnes in November.

The trade found new routes for bringing in the yellow metal illegally, and in some cases methods adopted made a mockery of restrictions. Chidambaram's recent statements pegged smuggling at 3,000 kg across the country each month.

The Directorate of Revenue Intelligence recently stopped a consignment of around 200 kg of gold jewellery imports by a Mumbai-based bullion leader. Officials believe the consignment was meant to be sold in the local market after melting it. "There is no restriction on gold jewellery imports, traders sell it after melting it. They make a profit of Rs 2,000 on 10 gm despite paying a 16% import duty. Who would wear a thick 80 gm bracelet? The racket is believed to be countrywide,'' an official said.

Import of gold bars is unprofitable considering conditions attached but traders have found ways to generate profit. The Reserve Bank of India (RBI) has imposed a condition that of total imports, 20% has to be exported, known as the 80:20 scheme. "One can import bars or buy them from 36 designated agencies, including banks," the official said. Last week, during a raid on some units, officials found that 20% gold never goes out of the country. "Jewellery exported contains a mix of metals with minimum gold content. During superficial testing, the equipment shows 22 carat gold. The rest of the gold is sold in the local market,'' the official said.

The scene is different at the airport. In November-December, smuggling figures stood at 35 kg only by passengers through Mumbai airport. Customs officials noticed a trend in November wherein many passengers declared carrying a kg of gold each. For November-December, 1,780 kg of gold was legally declared.

"The weak rupee and duties had put a price of Rs 31 lakh for a kg of gold here, while in Dubai it was Rs 24 lakh. That brought along a money-making opportunity for passengers, who had spent six months or more abroad,'' the official said. Under current laws, these passengers can bring into the country a maximum of one kg of gold for a Customs duty of only 10%. So the difference of Rs 7 lakh in the cost of a kg of gold sold here and in Dubai made it a profitable proposition even after the metal was declared and the duty paid. Hawala dealers are believed to be encouraging people to bring in gold for a commission.

Besides, 'carriers' fly to Dubai only to spend a few days and return with the metal concealed in soles of shoes, inside rods of trolley bags, inside cavities of emergency lights and in some cases, even in the rectum.

Source : timesofindia.indiatimes.com