Gold Rush

GOLD HAS ALWAYS been a hedge against inflation and for good rea­son. When money is getting devalued by the day, the metal is able to outpace this by its value going up. Many begin to park their savings in it instead of, say, stocks, bonds, or fixed deposits. This phenomenon is becoming evident now with the international price of gold having just crossed $2,000 per ounce. Even central banks, including the Reserve Bank of India (RBI), are stock­ing up. The World Gold Council, which keeps track of gold data, reported that RBI bought three tonnes in February. The supply of gold is more or less fixed, and so, when demand increases, the price shoots ups. In India, gold crossed ₹61,000 per 10 grams.

All this makes one category of professionals very excited—smugglers. The Times of India reported this week that Mumbai had become the epicenter of gold smuggling as per the customs department. Between April 2022 and February 2023, 604kg worth ₹360 crore had been seized there. This is only a fraction of what smugglers would actu­ally have succeeded in taking through. Indians are one of the biggest consumers of gold in the world, especially in rural parts, despite the poverty. They buy it as both ornament and savings. Smuggling was a serious problem in the 1970s and ’80s but after liberalisation, there was an increasing thrust on reducing duty and allowing Indians to bring in larger quantities legally from abroad. There was very little point in smuggling gold anymore. Over the last decade, the policy has reversed. Now, all government taxes put together add almost 20 per cent to the price of gold that an Indian has to pay.

Combine that with demand soaring and margins of smuggling become ir­resistible to the criminal entrepreneur. Curbing it is like the prohibition on alcohol. It just can’t succeed because all of society is complicit in it. Instead, what it does create is an underworld that becomes larger as the price of gold increases. Even though Mumbai, or the other metros, are the hubs where gold is smuggled in, these are transit points. It moves all over the country into vil­lages and small towns. This needs the creation of illegal distribution networks and the bribing of policemen and other agencies. The benefits that the govern­ment gets out of high taxes and the sav­ing of foreign currency are outweighed by second-order effects. The India Gold Policy Centre at the Indian Institute of Management, Ahmedabad, according to a 2021 The Hindu BusinessLine article, estimated “gold smuggling into the country at 300 tonnes per annum, lead­ing to a revenue loss of ₹20,000 crore as high import duty has led to high unof­ficial gold trade.” The numbers would only have increased since then.

Inflation is not expected to temper anytime soon globally, and until then, gold will keep making new highs. The jump in smuggling might only be the initial curve of the ascending graph. Once upon a time, the gold smuggler was the favourite villain of Bollywood. Don’t be surprised if you see him re­turning to your movie screen soon.

About The Author

Madhavankutty Pillai

Madhavankutty Pillai has no specialisations whatsoever. He is among the last of the generalists. And also Open chief of bureau, Mumbai  

•