Traditional logic has it that, with very high import duties on gold, India’s policies are encouraging smuggling, and the higher the duties, the greater the smuggling. A recent study by Thought Arbitrage Research Institute (TARI) shows, as for other commodities, this is indeed the case, except in the case of gold, there are other issues at play as well. TARI’s study for Ficci finds that, on average, India seems to be importing a lot more gold than is exported by other countries—in 2011, for instance, India imported 1,081 tonnes of gold while the exports of various countries added up to only 300 tonnes; this reverse smuggling fell to 101 tonnes in 2015. When smugglers declare a higher amount of gold being imported than is actually the case, this means they are sending out more dollars from the country than is legal—even the higher import duties that need to be paid on the imports are, obviously, not a deterrent since, going by TARI’s reckoning, gold has become a preferred route to smuggle dollars out of the country. Since there are only a handful of countries that export gold, tackling this shouldn’t prove that much of a challenge, especially if the World Gold Council is asked for assistance.
In the case of machinery, another big area of smuggling thanks to high import duties, the value of the duty-not-paid consignments is estimated at anywhere between 18% and 28% of total imports, or an average of around $6 billion a year. This represents not just a big loss of revenue for the government, it hits local industry pretty badly as well since smugglers offer a cheaper product than available locally. Matters are far worse in the case of cigarettes where exceptionally high local taxes, including excise duties have given a big fillip to smugglers. In 2011, TARI estimates 109,700 million sticks of cigarettes were sold legally as compared to 19,500 million illegal ones. By 2015, the legal route had dwindled to 85,600 million while the illegal ones had jumped to 23,900 million sticks. Not just does this represent a huge loss in potential revenues for government, it represents unfair competition to the industry. Given the huge implications of smuggling, and the fact that smuggling routes are closely linked to the illegal arms trade, it is critical the government cracks down on this. Beefing up the intelligence at border check-posts is critical, as is ensuring the current 20-30% shortages in sanctioned staff at the revenue intelligence wings are quickly filled. More than that, it is critical the government ensure its domestic and import tariffs are sensible—if there is a big arbitrage, smugglers are certain to find new ways to exploit it.