By Nantoo Banerjee


            The rising incidents of gold and US$ smuggling in and out of the country, following the downward exchange value of Indian Rupee, have become a source of major economic concern. They are threatening to further weaken the Indian currency. Recent reports from the Directorate of Revenue Intelligence (DRI) suggest that the greenback outflow through illegal channels is growing on account of smuggling. In fact, DRI has launched a nationwide crackdown on foreign exchange smuggling, particularly of US$. For long, legal gold inflow occupied an important position, after petroleum and natural gas, in the country’s total import basket. Weakening Rupee seems to have further pushed the domestic demand for gold, especially among the rich, to protect their wealth against the depreciating value of Rupee. This comes after high-value Rupee demonetisation in November 2016. Recent interceptions and seizures indicate gold smuggling has significantly gone up. How the government handles the new challenge to the currency stability is not clear. The latest government measure to partially raise import duties on certain products to reduce current account deficit (CAD) seems to have been done rather in a half-hearted manner. This is unlikely to stabilise Rupee.


            The customs department and DRI are working overtime to contain smuggling which has been rising since last year as Rupee’s stability started becoming uncertain. According to reports, the customs and DRI together seized large amounts of foreign currencies, mainly dollars, since April 2017 in 584 interceptions at major international airports. The illicit outflow of foreign exchange doesn’t include hawala transactions. Official estimates say gold worth Rs. 10,000 crore is being annually smuggled into the country. The smuggling-out of foreign exchange is linked with the smuggling-in of gold and other items. Between April 2017 and March 2018, the customs and DRI seized 3.1 tonnes of smuggled gold worth around Rs.1,000 crore. This is considered only five to ten percent of the actual illegal trade. Illicit gold consignments are said to be coming from Bangkok, Dubai and Hong Kong through land, air and sea routes while foreign exchange is illegally taken out of the country through international airports in Delhi, Mumbai, Kolkata and Kochi.


            Officials are also said to be looking at busting international syndicates which may have created “assets” at major international airports in India leading to large scale physical smuggling of foreign exchange. The government has booked as many as 167 cases of foreign exchange smuggling across the country between April-July 2018 alone. During the entire last financial year, the total seizures of foreign exchange, mostly US dollars, were close to Rs.90 crore in as many as 417 cases of interceptions. Recently, revenue department sleuths trapped seven Chinese nationals at Delhi’s Indira Gandhi International Airport as they were trying to smuggle out foreign currency worth $890,000. They were set to take off by a Cathay Pacific flight. The US dollars were  found tightly wrapped in towels inside their luggage so as to escape detection by security and custom checks at the airport, officials said.


            In the last six months, gold smuggling has reportedly shot up by 250 per cent. The customs air intelligence unit says there have been a difference of Rs 3000-4000 per 10 grams gold between the foreign markets such as Dubai and Hong Kong and India. The high price differential may have additionally encouraged higher smuggled gold transportation into India. Many say that the government’s earlier decision revoking notification of Prevention of Money Laundering Act (PMLA) against gold and jewellery dealers not only boosted the bullion market, but also helped gold smugglers. Lately, the owner of a jewellery shop in Dubai was arrested in Mumbai for allegedly smuggling 50 kgs of gold into India with the help of his businessman brother. The shipment, which contained 20 disc-shaped pieces of gold each weighing 2.5 kg, was headed for Gujarat. DRI officials said the brothers were trying to pass off the shipment as a metal consignment.


            Basically, this is to give an example of how the rising gold and foreign exchange smuggling, predominantly US$, have added to the challenge of stabilising Rupee. The customs and DRI are doing their job. Nothing much is reported about large smuggling of other commodities into the country. The government urgently needs to take some hard decisions to stem the rot. The smuggling-in of gold and other items and smuggling-out of foreign currency, mostly US$, are not the only illegal activities that threaten to destabilise the country’s economy at a time when it is poised for a high growth. Smuggling challenges the very concept of ‘mercantilism’ under which a nation’s wealth is based on selling more than it buys. Smuggling thrives on illegal transportation of goods across an international border. It not only causes revenue loss to a country by evading duties and taxes, but smuggling promotes crime, hurts domestic industry, chokes employment, creates economic and political instability.


            The government recently hiked import duty on 19 ‘non-essential items’ ranging from air-conditioners to aviation fuel. The total value of imports of these items in the last fiscal was about Rs 86,000 crore. This is a minuscule sum that covered only about 2.5 percent of the total import, last year. During 2017-18, India’s imports increased by 19.59 percent to $459.67 billion. The trade deficit during the fiscal was $156.83 billion. The duty hike may not necessarily lead to compress imports. In many cases, it may only increase their smuggling into the country. Asia’s third largest economy urgently needs to have a highly coordinated economic policy that focuses on large domestic production, export, strengthening the hands of the revenue intelligence department and providing exemplary punishment for smuggling. Unfortunately, at this stage, India’s economy is facing a barrage of bad news, including elevating oil prices, fiscal concerns, debt crisis and large outflows of US$, legally and illegally. The government must act fast.

(IPA Service)

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