Illegal shipments have been hit by one of the world’s strictest lockdowns, which was announced in March and halted international flights among other measures. It also resulted in the economy contracting by almost a quarter in the three months through June, slamming overall demand for gold. While restrictions are slowly easing, the country is yet to fully open up its borders as it’s rapidly becoming the global epicenter for virus infections, lagging behind only the U.S.
“There were no flights in the last six months and so there has been a negligible amount of smuggling,” he said. “Whatever is being smuggled is coming from land borders with Nepal, Pakistan, Bangladesh and Sri Lanka and not much from airports.”
That’s pushed the monthly average of smuggled gold caught at Indian airports to a six-year low of 20.6 kilograms in the year started April, according to Bloomberg calculations based on finance ministry data.
Smugglers of gold have benefited from record high prices and a 12.5% import tax that India imposes on shipments of the metal and additional local taxes, making illegal purchases cheaper. Jewelers have been seeking a cut of at least 50% in the import tax to reduce the inflows and legalize the imports.
That will be key for India as once flights resume in full swing, smuggling may rise again. Removal of the import duty on gold by Sri Lanka this month may also increase smuggling into India, Padmanaban said.
“A 45-minute boat ride from Sri Lanka can get you to India’s southern tip,” Padmanaban said. “They all switch their operations very quickly.”