Airport security in Calicut, India was shocked last week when all 80 passengers on a flight from Dubai declared 1 kilogram of gold each when passing through customs. “It’s not illegal. But the 80kg gold that landed in Calicut surprised us.” said an official. Retail price in India for the 80kg on the flight was over Rs 24 crore/240 million rupees ($3.86 million.) Records show that over a metric tonne (1000kg) of gold has legally come through the airport in only 3 weeks, worth over $48 million. What’s going on?
Jewelers and smugglers both have started using a legal loophole in India’s gold import restrictions to bring gold into the country, 1 kilo at a time.
NRIs (Non-Resident Indians) who have worked overseas for at least six months, are allowed to legally bring home 1kg of gold as long as they pay the 10% import tariff. With spot gold prices in India recently reaching $160/oz over the global spot price, importers still see a profit of 75,000 rupees ($1,200) per kilogram, even after paying the 10% duty.
Jewelry companies vie with black market operations to use this new loophole, advertising with travel agencies in Dubai, and offering to pay the laborers’ air fare for transporting the gold. Representatives meet the laborers at the airport in Dubai, and give them the gold bar and their airline ticket. They all board the flight together, fly to India, and once past customs, the laborers hand over the gold bars. It’s all above-board and legal, so customs officials can only look on in disbelief.
India has traditionally been the worlds leading importer of gold, with little to no gold mines of its own, and a history of inflation. The love for gold however, goes back centuries, being used for wedding gifts and temple donations, as well as a store of wealth. The government has enacted stiff import tariffs, and cut off financing for gold imports, as well as forcing importers to turn 20% of their gold into jewelery and exporting it before they can import more. This has caused gold smuggling to explode to unprecedented levels, with even narcotics smugglers ignoring their usual trade in heroin to smuggle gold – the profit is higher!