With gold smuggling on the rise, the domestic bullion industry is in the doldrums. In the past few months, 32 gold refineries in the country, having a combined refining capacity of 1450 tonnes per annum, have closed down.
Add to this the retrenchment that experienced manpower in this industry is facing, and you have a ballooning problem on hand. The official imports of gold, or bullion, have come down by 60 per cent in the past 4 months, whereas domestic bullion supply is increasingly being taken over by the grey market, including by stock that is smuggled in, for a variety of reasons.
Imports unviable It is learnt that gold and gold bullion from the unaccounted grey market is available at a discount of 5 per cent below the daily international gold rates (London Metal Exchange rates). This has made official sector imports unviable. (Bullion is a term used for metals such as gold when referred to in bulk, or valued by weight.)
Gold refineries which import their raw material, gold dore, at daily LME rates, are struggling, with some downing shutters, with inventories lying unsold in a discounted market.
The lower quantum of import of bullion and gold dore in the current year has reduced the import bill and hence Current Account Deficit (CAD) for the Government may look presentable from the view point of balance of trade. But the growth in grey market operations has bled the Government considerable amount of revenue from import duty. Unless gold import duties are brought down to realistic levels, this nascent import substitution industry may vanish, defeating the very purpose of the ‘Make in India’ campaign of the Government, said James Jose, Secretary, Association of Gold Refineries and Mints.
The jewellery industry bodies such as Gem and Jewellery Export Promotion Council (GJEPC) and Gem and Jewellery Federation (GJF) had also taken up this matter with the Prime Minister and the Finance Minister recently.
Other industry bodies such as the Bullion Federation of India and the Association of Gold Refineries and Mints have brought this matter to the attention of the Finance Ministry requesting immediate reduction in import duty on bullion from 10 per cent to 5 per cent so as to make smuggling unattractive.
These industry bodies have further urged the Government to keep the imminent Goods and Services Tax (GST) rates too at realistic levels so as to discourage grey market operations.
“It is also alarming from the national security perspective as well, because these funds are often diverted through hawala and to underworld transactions,” said Haresh Acharya, Secretary, Bullion Federation of India.
Because of this upswing in grey market imports, the hawala rates for money transfers, or those made outside traditional banking systems, are understood to have gone up from 1.5 per cent last year to 3 per cent in the current year, which negatively impacts the value of the Indian Rupee.
