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Gold import ban reins in India’s CAD, neighbours pay the price

Concerned over the rising CAD, largely due to gold imports, India raised import duty on gold to 10 per cent from Rs 300 per gram in 2012.

New Delhi |
February 24, 2014 2:36:03 am

The government’s success at bringing down the current account deficit (CAD) have apparently come at a very high cost as far as India’s neighbours are concerned.

A senior official told The Indian Express that customs officials of Sri Lanka, Bangladesh and Pakistan have spoken to their Indian counterparts on the rise in gold smuggling in their countries due to steps taken by India to curb gold imports for reining in CAD. The countries, the official added, have also sought India’s advice on tackling the twin issues of smuggling and CAD.

“There was an informal meeting between customs authorities of India and these countries wherein they sought India’s advice as to how to tackle the smuggling and CAD. With India being able to bring down its CAD successfully, these countries have asked it to share these measures with them,” the official said.

Concerned over the rising CAD, largely due to gold imports, India raised import duty on gold to 10 per cent from Rs 300 per gram in 2012.

It also imposed quantitative restrictions on the metal. As a result, the CAD which shot up to $88 billion or 4.8 per cent of GDP in 2012-13, is estimated to narrow down to $45 billion in the current fiscal.

However, the curbs have led to substantial rise in smuggling, both in India and its neighbours including Pakistan, Sri Lanka and Bangladesh due to porous borders. Smugglers have been routing gold in India through Bangladesh, Sri Lanka, Nepal, and Pakistan among others.

This has led to a surge in import of the yellow metal in these countries.

Since all these countries have had customs duties less than the 10 per cent, smugglers have been reaping benefits of the arbitrage.

While a worried Sri Lanka has imposed import duty of 10 per cent on gold for the first time, Pakistan has temporarily banned gold imports for the second time in six months in an attempt to stem smuggling.

The ban would be for 30 days though exports would not be restricted. Pakistan last banned imports for a month in August last year.

Authorities in Sri Lanka and Bangladesh have been routinely nabbing people suspected of smuggling gold out of the country at airports. Bangladesh has seized gold worth more than 300 kg in the last few months, most of it being routed to India.

Further, apart from gold smuggling, Pakistan is also battling with a widening CAD, which ballooned to over $2 billion in the first seven months of FY14 compared to $441 million in the corresponding period of 2012-13, according to State Bank of Pakistan.

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