Gold Smuggling in India Refuses to Abate Despite Import Duty Reduced from 15% to 6%

Gold smuggling in India has evolved from small-time couriers to involving well-organized networks, bureaucrats, and celebrities. A few months ago, Kannada film actress Ranya Rao was caught smuggling 14 kilograms of gold at Kempegowda International Airport in Bengaluru, exposing systemic loopholes and demonstrating deep-rooted connections in pursuit of smuggling gold and avoiding import duty, which, however, has been reduced substantially by the Central Government in the Union Budget 2024-25. The import duty was slashed to 6% from 15%.

The Ranya Story Exposes the Loopholes That Continue to Aid Gold Smuggling in India

Interestingly, Ranya had almost cleared airport security when the Directorate of Revenue Intelligence (DRI) intercepted her. She was confident that she would pass the security check. However, investigators nabbed her this time. She made as many as 30 trips to Dubai in the past year and used multiple smuggling techniques such as hiding biscuits in jacket linings, wearing heavy gold jewelry, etc. She used to receive a heavy INR 12-13 lakh for each successful trip. This prompted her to continue smuggling gold and earn on it. She used to bypass security checks using her stepfathers bureaucratic privileges and board a government escort vehicle outside the airport without getting checked by customs officials. The event was a growing reminder of the deep-rooted corruption in India where people use unsolicited power to smuggle gold and other precious items.

Gold Smuggling Economics Drive Many Crazy

While the government slashed the import duty on gold from 15% to 6% last year, gold smuggling continues to happen. Because its profitable owing to immense arbitrage opportunities, cultural choices, and a trust deficit in formal financial systems.

The rising gold smuggling in India points to the price gap that exists between domestic and international gold rates owing to GST, import duties, as well as other regulatory barriers. So, even if the import duty stands at a reduced 6%, gold smugglers can reap huge gains by bypassing legal import networks. As per the calculations, the per kilogram gain can be to the tune of INR 5-6 lakh.

The Ranya Rao case reflects the inherent profit-making potential when smuggling gold. Despite the government‘s repeated attempts to reduce people’s reliance on gold, the burgeoning demand meant people are going all out to buy the yellow metal. Despite government restrictions, the black gold market where one can buy and sell the yellow metal without official records is flourishing.

Gold - A Messiah in Times of Political and Economic Uncertainty

People view gold as a safe instrument to protect themselves against uncertain economic and political environments.

Rising Inflation

People switch to gold to protect their wealth with the rise in goods and service prices, represented by the inflation rate.

Rupee Depreciation

Historically speaking, the Indian National Rupee (INR) has constantly dropped against the US dollar, making gold an attractive hedging mechanism.

Ongoing Geopolitical Crisis

Were living in a world where wars are happening for fun. Since 2022, countries have engaged in short and long wars, impeding the global economy.

India‘s Love for Gold is Unparalleled

India is the largest consumer of gold jewelry as per the latest data. The data revealed India’s gold jewelry consumption of 563.4 tons, moving beyond Chinas 511.4 tons. Overall, gold demand, however, remains higher in China. That being said, India holds 11% of the global gold stock despite accounting for only around 2% of the worldwide population. However, instead of using them for economic productivity, Indians store gold as jewelry and bars, usually outside the formal banking system. Even the Gold Monetisation Scheme failed to convince Indians to put their gold reserves into banks. The growing possession of physical gold only encourages gold smuggling in India.