THE SENIOR ANALYST
Measures to stop smuggling
Aware of this fact, government officials also
stepped up checks to prevent the entry of
smuggled gold. Earlier travellers would decorate
their whole body with gold ornaments and some
would even conceal carbon wrapped gold pieces
in their body while coming back to India from
Middle East, Thailand and Singapore but now
there is a limit on the jewellery that one can carry
on his body or in one’s pocket. India also
developed an understanding with its neighbors
for controlling their inflow and outflow of gold.
Sri Lanka for example raised taxes on gold
imports and Pakistan banned gold imports in
August as both countries believed that much of
the inflow was smuggled to India.
Yet the smugglers flourish
When the easy routes to smuggle gold are
stopped, it gives way to a rise in smuggling
through major international syndicates. Now
major criminal cartels are eyeing the opportunity
to venture into this filed which would eventually
lead to ship based and other high tech smuggling.
Some smugglers would even open up software
companies abroad that would even employ 20-30
people to pay for the Gold smuggling. How this
does happens? Well, a company would simply be
writing 50 lines of codes for a fictitious client in
India and raise a false invoicing of $100 thousand,
now all of us know that 50 lines of code cannot
cost a hundred thousand dollars, but no one can
stop it if a company is really charging it and a
client is willing to pay. Thus, the fictitious
organization abroad is paid the money in the
name of software and gold is smuggled in
anyhow into India.
Now what is the big deal with smuggling if it
keeps the gold inflow going and yet India can
show a lower CAD on its books? The issue here is
that if the Indians keep on paying for more gold it
will negate the benefits that a low CAD may have
Jan 2014
on the economy, this however will not be felt
over the short term and the government policies
are precisely designed to take care of the short
term (read 2014 elections). Furthermore, these
smugglers are in a nexus that funds terrorist
activities, recently Patiala Police arrested a
businessman who was allegedly involved with
Dawood Ibrahim and his brother Anees in a gold
smuggling racket, a relationship that dated back
to the 80s.
The way forward
What can we do to stop the import of gold and
yet satisfy a moderate demand for the same?
India is the largest buyer of bullion gold and it is
one commodity that is stashed into the coffers
after purchase till the time it is enchased. What
the government can do is to circulate this stacked
up gold in the economy thereby reducing foreign
reliance. Let’s have a look at the OMC Swap to
see how this can be affected.
OMC swaps are schemes devised by the central
bank to issue dollars to the Oil Marketing
companies for exchange of equivalent rupees,
which the OMCs need to payback over a period of
time. The idea is simply to save the rupee as the
rupee might further depreciate if OMCs need to
purchase dollars from open market. Similarly a
swap option maybe effected to purchase gold
from consumers and institutions who hoard them
in huge quantity. Any institution which hoards
gold, be it a trust, a charity or a temple or any
religious body like Gurdwara or Monasteries are
essentially keeping a lot of its fund unutilized.
Banks may thus purchase these gold and pay
them back a year later its rupee equivalent with
interest. This will help the banks to circulate gold
in the economy without importing from abroad
and would also encourage temples and other
non-profit organizations to utilize their fund,
instead of hoarding them as a hedge against
inflation. Of course there would be religious
sentiments involved in the issue but temples do
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