Government's attempts to rein in gold imports fuel smuggling.

NEW DELHI: The government's attempts to rein in gold imports by increasing the customs duty seem to have resurrected the 'tola' bars or unnumbered bars, a favourite of smugglers and money launderers.

The directorate of revenue intelligence (DRI) late on Monday night caught 35.85 kg of tola bars being smuggled into the country from Bangladesh. "The trend does not augur well... Tola bars are unnumbered and, therefore, tracking them is very difficult," said a DRI official confirming the haul.

The import duty on standard gold has risen from nil to 6 per cent in the last fiscal.

The tola bars were a favourite of the Mumbai underworld and the DRI had to request the government to raise duties on these bars. The government started imposing higher import duty on tola bars since 2003. The move slowly killed the manufacturing of tola bars globally because the 10 per cent duty differential made them unviable in India through the official route.

The differential duty regime continues but the gap has narrowed after the government raised import duties on standard bars to rein in the high current account deficit. The tola bars attract import duty of 10 per cent while standard numbered bars face 6 per cent duty. The high import duty on standard bars has resurrected gold smuggling, bringing back the tola bars. The official 4 per cent difference has also made their regular imports viable for those wanting anonymity of purchase and traceability.

Bullion trade in numbered bars is well defined with a well documented trail. Moreover, even when a smuggling haul is made a standard numbered bar makes it very easy for authorities to trace its origin.

The DRI had recently informed the government about organised cartels becoming active again in gold smuggling because of the price differential. "Emergence of tola bars on the smuggling scene only confirms this," said a customs official.

This could undermine the government's efforts to curb gold imports to check the ballooning current account deficit that touched a record high of 6.7 per cent in third quarter of 2012-13. India's gold imports stood at $42.0 billion in April-January 2012-13, contributing massively to the CAD.