The Hindu newspaper is reporting on the Indian Government’s installation of a new type of metal detector at selected airports. The new machines are tuned to find gold and other precious metals instead of weapons or bombs, in an attempt to stem the flood of gold being smuggled in from the Arabian Gulf states. Gold smuggling into India is expected to top 250 tonnes this year, and customs inspectors are overwhelmed when trying to inspect each passenger.
One kilogram of gold can be imported by anyone who has stayed abroad for six months by paying 10% customs duty plus an education tax of 3%. In an effort to alleviate smuggling, the Indian government has increased the maximum amount of gold jewelry citizens can bring back on their person to India after living for a year abroad: Rs 50,000 for men, and Rs 100,000 for women. Some opportunists who misunderstand the new law believe it applies to those who go on vacation as well as long-term overseas residents, much to their chagrin.
The tripling of import fees on gold over the last year had created a price differential which makes smuggling from Gulf nations such as Dubai very profitable. Gold is almost 6% cheaper in Dubai, which means smugglers can make a profit of Rs 200,000 (over $3,700) per kilogram of gold smuggled into India. Due to a history of inflation, Indians are avid hoarders of gold, especially the 70% of the population in rural areas, with no access to banks. Consumer prices rose 10.79% last month, which is better than last year, but still far above the yield on bank deposits. This means that depositors are actually losing purchasing power to inflation by having a savings account.