The customs department seized about 30 kilograms of gold in luggage declared as diplomatic, in Thiruvananthapuram airport. It has re-ignited India’s insatiable appetite for gold.
In the past ten years, the region’s annual average legal gold imports were about 652 tons (we had a high of almost 976 tons in 2011), the Reserve Bank of India (RBI) holds about 619 tons, and an estimated 20,000 tons of gold within the country’s temples and in the private property of individuals. Therefore, People would think that we have had enough of this metal.
However, our fascination with gold as the object of desire has not diminished. Its ductility and luster make it the metal of choice for jewelry, which is an indispensable part of our society. People also hoard yellow metal for its lasting value as a protector and hedge against unpredictable economic and inflation times.
The basic tariff or customs duty rate for gold is 12.5% with the comprehensive tariff rate for goods and services tax (GST) is 3%, and the highest tariff rate for imports is 15.5%.
A higher BCD (basic customs duty) exchange rate not only generates revenue but more as a measure of saving the trade deficit with unattractive imports. The corollary of this is that in view of rising demand and gold prices, smuggling has become a tempting proposition, with a substantial profit of more than Rs 500,000 to be made per kilograms.
Gone are the days of landing on the coast because now gold is smuggled by land routes from Myanmar, Bhutan, and Nepal, by air passengers, and by sea and air cargo.
Although the Customs department and DIR (Directorate of Revenue Intelligence) conducted major investigations and thwarted numerous such attempts, the savvy smugglers also adopted the route of diplomatic baggage.
The privileges and immunities of diplomats are administered by the Vienna Convention on Diplomatic Relations. Therefore, the premises of the mission are impenetrable or inviolable, so is the private apartment of the diplomat. Diplomatic pouches must not be opened, and customs duties on goods imported by diplomats are exempt, regardless of whether they are for personal or official use.
A mission notifies the Ministry of Foreign affairs( MFA) of the objects in it or attached a diplomat to seek import of the goods and the MFA notified the customs department accordingly. All privileges are extended, and goods are exempt from taxation and inspection. Unfortunately, this is sometimes abused, and contraband is often imported in the name of diplomatic baggage.
The current case involving diplomatic cargo has seen the mission concerned cooperated with the customs department (different from the acrimonious situation when a diplomat intervened and refused to cooperate), and allowed inspection of the diplomatic cargo. It seems that cargo which came from the UAE had tampered with and gold was hidden inside. Although this has caused many problems, it is clear that the investigation will help unravel and clarify the truth.
A more comprehensive question that arises is whether the gold import tariffs that provide the necessary impulse and incentive for smuggling should be reduced.
In the past ten years, it has been a long journey from completely restricting on gold imports to tariffs (300 rupees per 10 grams in 2011) to the current BCD tax rate of 12.5%.
During this period, the price of gold has risen by nearly 150%. Given the demand for gold, the arbitrage provoked by massive tariffs, the pressure on law enforcement to terminate smuggling, and the harmful effects of smuggling funds that can be used for harmful activities detrimental to the country, it may be reasonable to look at the current gold tariff structure.
This will indicate a certain degree of loss of revenues, but it will be more than offset by the decline in collateral damage provoked by the proceeds of smuggling.
People also need to get rid of their fascination or obsession with gold. The Reserve Bank of India’s sovereign gold bonds is one step ahead. Ultimately, the answer will be to raise more awareness among the younger generation that this metal is just another metal.