Customs and other investigative agencies reported a surge in gold smuggling at airports in the year since demonetisation, especially in the first five months of 2017, when the currency in circulation rose gradually.
Mumbai, the country’s second largest airport by passenger traffic, saw 260 smuggling cases from January-May 2017, double of the same period a year ago. In those five months, airport Customs seized 125.3 kg of gold worth Rs 33.71 crore, compared to 66.73 kg worth Rs 17.26 crore seized a year ago.
Till October 2017, the Air Intelligence Unit (AIU) of Mumbai Customs had seized 243 kg of smuggled gold worth Rs 61.85 crore in 564 cases. In terms of value and the number of cases, this is over 100 per cent more than AIU seizures during the same period a year ago.
Hyderabad airport Customs registered at least 40 cases until August this year, against 10 cases in the same period a year ago.
“Demonetisation put a temporary dent in gold smuggling largely because currency was squeezed out of the system. Now, with remonetisation, the smuggling racket is back in action. The rise in seizures of smuggled gold at airports between January and May 2017 indicates that the existing demand for gold is not being met through official channels,” said a source on the condition of anonymity.
The official said the authorities believe that some of the seized gold may have been contracted to be delivered earlier, but was not brought in due to increased surveillance and a cash crunch following demonetisation.
Currency in circulation dropped from Rs 17,74,200 crore on November 4, 2016, to Rs 8,73,416 crore by January 6, 2017, with people rushing to banks to deposit demonetised currency. By April 28, the currency in circulation had risen to Rs 14,06,968 crore.
Officials said that while better detection could be a reason for the rise in seizures, the surge showed demand for gold had increased amid government restrictions.
“The increase in the smuggling of gold also indicates that people may be choosing to keep unaccounted money in the form of the yellow metal, especially at a time when the government has put cash under the scanner and taken steps to weed out shell companies,” said an official of the Directorate of Revenue Intelligence (DRI). “Gold is easy to store and remains largely undetected unless there is specific information on the gold holdings of an individual.”
Typically, gold demand is high when retail inflation is high. People buy gold to hedge against inflation. While retail inflation in the country has been static, with September’s consumer price index (CPI) inflation at 3.28 per cent, household inflation expectation still remains high at 10 per cent. This could be one of the reasons for the increased demand for gold in India.