MUMBAI (Reuters) - Gold smuggling into India, the world’s second-biggest consumer of the precious metal, is becoming more risky for couriers following a surge in seizures and less profitable for the gangs behind the practice.
After being caught off guard by a jump in smuggling on the back of a hike in import duty last year, government agencies have stepped up seizures to the extent that couriers are demanding more money to carry in gold, according to customs intelligence officials and an industry analyst.
At the same time, a drop in the gap between local and global prices also means there is less profit to be made by smuggling in gold, giving banks more business and higher revenue for a government struggling to rein in a fiscal deficit.
“Gold smuggling was highly profitable ... but now with the drop in premiums and tight security, legal imports are increasing,” said Milind Lanjewar, additional commissioner of customs intelligence at Mumbai international airport.
Seizures at the airport, one of India’s biggest hubs, jumped almost nine fold to 604 kg in the period running from April to September 2014 against 70 kg in the same period a year ago.
Customs and police have also got wise to some of the tricks used to bring in gold, such as adopting the methods used by drug smugglers by getting human mules to swallow nuggets or in one case hiding gold bars in dead cows.
“The risk of seizures has risen. Carriers are now demanding 287 rupees ($4.70) per 10 gram compared to 150 rupees last year,” said Sudheesh Nambiath, a senior analyst at consultancy Thomson Reuters GFMS. Based on the estimate, a courier bringing in 1 kg of gold currently worth around $40,000 at world prices could earn $470 if not caught.
A customs official, who declined to be named, said smugglers risked a jail term of up to seven years, though he said such a penalty was rare and the main deterrent was confiscating gold.
Premiums have crashed to around $12 an ounce over London prices, compared to a record of $160 last year after the imposition of a record high 10 percent import duty.
“Smuggled gold is still landing in the country, but the pace has been moderating due to lower premiums,” said Daman Prakash Rathod, director with Chennai-based wholesaler MNC Bullion.
On other hand, India’s legal gold imports surged 450 percent in September from a year ago to $3.75 billion.
“It is difficult to quantify, but certainly smuggling has gone down,” said a leading gold dealer based in Dubai, one of the main sources of gold for smugglers to India.
The World Gold Council has estimated about 200 tonnes will be smuggled into India in 2014, versus 150-200 tonnes last year.
According to the industry body, Indian gold demand was 974.8 tonnes last year, second only to China.
But a Mumbai-based bank dealer said with little prospect of premiums rebounding smuggling in the December quarter could be half of last year’s level based on the legal imports coming in for a period when demand rises due to festivals like Diwali.
Indian customs officials appear to have got more on top of gold smuggling.
“Until 2012, intelligence agencies were focused on the narcotics trade as gold smuggling was negligible,” said a government official who did not want to be named. “As smuggling rose, agencies gradually built a network of informers.”
Whistleblowers who help bust illegal gold shipments can get a bigger reward in India than those who help catch cocaine and heroin smugglers.
A jeweller based in Kochi in the southern state of Kerala said that with gold smuggling already falling, any move to cut India’s import duty even just by 2-3 percentage points would make the practice barely worth while.
Some in the gold industry expect that the duty could be cut after the peak demand season ends in December, while others argue a reduction is unlikely before March next year.
(This version of the story was refiled to remove extraneous word in third paragraph)
Editing by Ed Davies