Thiruvananthapuram: The incident of gold smuggling through a diplomatic channel and the investigation that ensued after a seizure by the Customs has been grabbing national attention for the past one month.
The alleged involvement of a senior IAS officer, who was the former Principal Secretary to the Chief Minister, and his relations with the key accused in the case, has given a political dimension to the case.
Besides Customs, the central agency - National Investigation Agency (NIA) - has taken interest in the case. Both the agencies have been probing the case in tandem, in order to look into the possible hawala deals and terrorist links of the accused persons.
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These aspects of the gold smuggling case are critical to the national security and economic stability of India for which NIA has come into the picture.
Questions on why large scale gold smuggling from the Gulf countries are being reported mostly, why the smugglers choose Kerala among all other states in India or why gold is being smuggled always, instead of any other valuables or currency. In an attempt to address these questions in a comprehensive manner, we had a conversation with a senior Indian Revenue Service (IRS) Officer. The senior IRS officer, who prefers to remain anonymous, in an interview with the ETV Bharat explores all these aspects of gold smuggling.
Why is there a rise in the incidents of smuggling from Gulf countries?
Until 1990, gold smuggling was a criminal offence in India. The Gold Control Act 1968, was revoked by the Indian Parliament on June 6, 1990, through the Gold (Control) Repeal Act 1990. With the enaction of the 1990 act, all those who lived abroad for 6 months and returned to India could carry and bring home gold of up to five kilograms.
Under this, a duty fee of Rs 22 only had to be paid for one gram of gold brought to India from abroad. So, technically, gold could be brought in by anyone paying a duty of Rs 176 on one sovereign of gold. This possibility was reportedly exploited by the smugglers.
In those days, a common man returning home from Gulf countries were targetted by the smuggling gangs to smuggle in gold. The smugglers compensated those willing to carry gold for them by sponsoring their flight tickets. Such ‘carriers’ pay the duty at the airports and hand over the gold to the smugglers’ links waiting outside the airport.
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In one flight, there used to be 50 to 60 such ‘carriers’. In a survey conducted by the Income Tax department and the Directorate of Revenue Intelligence then, it was found that the financial status of most of these people, who paid duty and brought gold in large quantities, was very bad.
They were not in a position to afford even one sovereign of gold. This clearly indicated that these persons were mere ‘carriers’ engaged by the smugglers. The ‘carriers’ never knew where the gold came from or where it reached.
This practice went on until 2012. In 2012, the import duty of gold was revised to 10 per cent of the market value in India. In 2014, it was further revised to 12.5 per cent. Once the duty of the gold became 12.5 per cent of its market value in India, it became a huge amount to be paid to the government as a duty.
In this scenario, smuggling gold became a highly lucrative option. This profit motive is the base factor for the rise in gold smuggling cases thereafter.
Why gold?
Gold is the easiest alternative to illegally bring money from another country into India without using legal or bank channels. Such illegal methods of transferring money from abroad are called hawala money transfers.
Most Keralites working in the Gulf countries work in unskilled labour sectors. For them, it is not always possible to send money home through proper channels. In some cases, they may even be working illegally without having actual work visas.
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In vast countries like Saudi Arabia, the banks will be far away from the workplaces or labour camps. In such cases, they entrust the money with a local hawala agent - who collects money from labourers in the locality and send it to the home country.
The agent, who collects money from the locality there, only calls and informs his counterparts in this country to deliver the money to the labourers’ homes.
Crores of money are still being transferred through such illegal hawala channels from Gulf countries. Usually, the equivalent value of gold is smuggled in and sent to the hawala agents at this end. Even when a minimal duty could be paid to import gold, earlier, gold was smuggled on a large scale for the same reason. The high population and a huge market for gold in India with an ever-rising demand, are also factors making gold, the sort after commodity for smuggling.
Why Kerala is being chosen for gold smuggling?
Compared to other states in India, Kerala has four international airports. Most other states do not have as many international airports and international flight services.
Once the gold is taken out through any of the four airports in Kerala, it is easier to get it delivered to the desired place.
Read: Gold Smuggling: Missing UAE Consulate Kerala Police security officer found
As we hinted earlier, the money to be distributed to the hawala gangs and their agents are also in Kerala. The NIA took over the case of large scale gold smuggling through the diplomatic baggage channel at the airport based on the allegations that the money brought in to the country through such means are being used for extremist activities.
However, the NIA has not yet received any concrete evidence to prove this so far, in the case investigation. Though the ‘carriers’ or their immediate links get caught most of the times during gold smuggling attempts, there has been no deeper investigation into where the gold comes from and where it reaches.
Why is gold being liked more and more? Why does the gold price spiral?
Gold is the best investment option in the economic structure of developing countries, although, during the two and a half decades till 2014, the value of gold did not rise in proportion to the other investment methods.
Other options of investment - like shares, debentures, mutual funds and real estate - had a real boom then. The reason - the income from these lucrative options rose tremendously during this period.
However, post demonetisation, with the Indian economy taking a severe blow, the real estate sector came crashing down. Besides, there was a significant fall in the rate of returns generated from other means.
Read: Gold smuggling case: NIA seizes Rs 1 crore, 1 kg gold from Swapna Suresh's bank lockers
This is where gold gained relevance again. In such situations, the investors shifted from other investment options back to gold.
The key factor for the rise in the price of gold in the past two to three years is the economic recession in India. Besides, it is easy to carry gold from one place to another.
For example, it is difficult to carry or transport currency notes of Rs 1 crore from one place to another. But it is easier to carry gold worth Rs 1 crore from one place to another. It is also convenient to stash away the gold which has that much value safely in bank lockers. Nevertheless, secretively keeping the currency worth Rs 1 crore is highly risky. This is where the yellow metal seems attractive for investors.
The anticipation of another demonetisation?
The smugglers and black money rackets do anticipate another possible demonetisation move from the centre, like the one that happened on November 8, 2016. If such a situation arises again, it will not be easy to launder black money.
But, if the investment is made in gold, it will not be a problem at all. So, those who anticipate another demonetisation in India play it safe and invest their black money mainly in gold.
This causes a steep hike in the price of gold in India. Nonetheless, once the Indian economy regains normalcy, the investment in gold will diminish and the investors will return to real estate, stocks and mutual funds. Analysing the possibility, it is also expected that the price of gold will drop steeply on the economy regaining stability.
