Friday, February 07, 2014
‘Gold smuggling may have cost Govt Rs.6200 Cr’
MUMBAI, FEBRUARY 6: The Government lost $1 billion (Rs.6200 crore) in revenue from duties and taxes last year due to the sharp increase in smuggling of gold.
Speaking to Business Line, Aram Shishmanian, Chief Executive Officer, World Gold Council, said curbs imposed by the Government has led to 150-200 tonnes of gold being smuggled into India and a potential revenue of $1 billion was lost in terms of taxes.
“The irony is the money would not be recovered in the years to come. Once into the grey market, the gold would remain there and never come into the legitimate trade,” he said.
That 200 tonnes of gold came in through the black market route means that regardless of the Government measures, gold demand continues in India and is growing gradually, he added.
Last year, over 15 regulatory changes to curb gold demandwere made by the Government. The changes caused a scare in the jewellery industry.
Any industry that has to respond to the changes is going to get grid locked, particularly with the 80:20 rule, said Shishmanian. In a bid to curb gold imports, the Government increased import duty to eight per cent, and the Reserve Bank of India made it mandatory for jewellers to export 20 per cent of their gold consignment before placing orders for fresh gold imports.
High import duty and other restrictions fuelled smuggling and black marketing industry. The scourge of smuggling, which was largely eradicated in 1991 when gold imports were liberalised, has come back with a vengeance. Therefore, policy makers need to consider the consequence carefully, he said.
Gold demand in India is expected to fall 13 per cent to 750 tonnes in 2013 against 864 tonnes achieved in 2012, according to the World Gold Council. The demand in the first three quarters of the calendar year of 2013 was 700 tonnes.
The council will release its quarterly Gold Demand Trends report in the third week of this month. Despite the fall in demand and Government curbs, the council expects gold demand to touch 900-1,000 tonnes this year, as the Government eases curbs and expects better economic growth.
“I have talked to number of key policy makers and indications are that the curbs will be reduced, partly because the economy is recovering and therefore the current account deficit is reducing,” said Shishmanian.
He added that there is recognition that curbs on gold do not respond to the current account fiscal challenges.
These have to do with much broader macro economic issues and therefore curbs are an unsustainable short-term measure.