Commonwealth Network
India is the world's largest
consumer of gold, but does not produce any gold of its own. The
ever increasing demand for the precious yellow metal, subject to
high import duty, is fuelling a multi-million dollar gold
smuggling racket.
I
ndia's history and myth are a glitter with gold and
jewels. Rumor has it that in the oldest South Indian temples, the
inner sanctum brims with gold offered in devotion to the
gods.
Even though millions of Indian people live in poverty, India
is the world's largest consumer of gold. Not just a luxury
for the rich, every family acquires and gives gold on special
occasions. From a bride's wedding ornaments to a baby girl's
first gold earrings or the gold grain placed in the mouth of a
deceased loved one, gold is the touchstone of status and
security.
The perpetual demand for gold, which India does not produce, is a
major drain on the economy. Higher incomes, thanks to economic
reform, have boosted the demand, but a drop in gold production
(especially in South Africa) has forced prices up and high
duty on imported gold has Indians turning to smugglers to
satisfy their obsession.
According to the Bombay Bullion Association, last year India lost
an estimated Rs 6,000 crores (Rs 60 billion, about $1.7 billion)
of foreign exchange through smuggling, but the figure could be
higher. Even though the government has legalized the import of
gold, smuggling went up to 134 tonnes in 1995, from 118
tonnes in the previous year. The government lost over 25,000
crore ($7.2 billion) to bring in smuggled gold.
Efforts to curb smuggling by liberalizing the import of gold have
failed. Import duty is still high at Rs 220 per gram, and an
importer must obtain a license, the premium on which fluctuates
according to the market value of gold, among other factors.
Customs officials find it difficult to identify smuggled gold,
because so much legal gold is coming in, much of which is
unmarked. Without identification numbers on gold bars, forged
documents can be easily mocked up and bars transferred to cover
for unofficial supplies.
The World Gold Council says the Indian market for gold is
expected to double in 1996. Last year India's official gold
consumption was 477 tonnes. By the year 2000 it could reach 1000
tonnes. This is bad news for India's economy unless the
government makes an effort to further liberalize its import
schemes to make smuggling unattractive.
Jennifer Morrow
is a Canadian radio journalist based
in New Delhi. She edits a publication on social and current
affairs in South Asia, and is a freelance correspondent for the
Voice of America.
She is a member of the Indian Economy Overview editorial
panel.
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