(Reuters) – Indian gold smugglers are adopting the methods of drug couriers to sidestep a government crackdown on imports of the precious metal, stashing gold in imported vehicles and even using mules who swallow nuggets to try to get them past airport security.
Stung by rules imposed this year to cut a high trade deficit and a record duty on imports, dealers and individual customers are fanning out across Asia to buy gold and sneak it back into the country.
Sri Lanka, Thailand and Singapore are the latest hotspots as authorities crack down on travellers from Dubai, the traditional source of smuggled gold.
In a sign of the times, whistleblowers who help bust illegal gold shipments can get a bigger reward in India than those who help catch cocaine and heroin smugglers.
“Gold and narcotics operate as two different syndicates but gold smuggling has become more profitable and fashionable,” said Kiran Kumar Karlapu, an official at Mumbai’s Air Intelligence Unit.
“There has been a several-fold increase in gold smuggling this year after restrictions from the government, which has left narcotics behind.”
From travellers laden head-to-toe in jewellery to passengers who conceal carbon-wrapped gold pieces in their bodies – in the mistaken belief that metal detectors will not be set off – Indians are smuggling in more bullion than ever, government officials say, driven by the country’s insatiable demand for the metal.
That suggests official data showing a sharp fall in gold buying, which has helped narrow India’s current account gap, may significantly underestimate the real level of gold flows.
The World Gold Council estimates that 150 to 200 tonnes of smuggled gold will enter India in 2013, on top of the 900 tonnes of official demand.
Between April to September alone, India’s customs officials seized nearly double the amount of smuggled gold it nabbed in all of 2012.
“Though the quantum of seizures has increased, in our opinion it reflects only 1 to 2 percent of total smuggling,” said a revenue intelligence officer in Mumbai who declined to be named. “Dubai is still the number one place from where gold gets in and Singapore is slowly emerging. Sri Lanka has become a staging point.”
Grappling with a high trade deficit and weak currency, India imposed measures this year to crimp demand for gold, the second most expensive item on its import bill after oil. It imposed a 10-percent duty on bullion and a 15-percent tariff on jewellery. Imports plunged to 24 tonnes in October from a record 162 tonnes in May.
Gold is an integral part of Indian culture, offered at weddings and festivals. India was the world’s biggest gold consumer until last year but will be overtaken by China in 2013.
India has now stepped up cooperation with nearby countries to stem the smuggling.
Last week, Sri Lanka limited the amount of jewellery its residents can take out of the country and it will try to monitor whether they bring it back. Pakistan banned all gold imports in August for a month as it believed much was being smuggled on into India.
Indian gold premiums have soared to $130 an ounce over London prices due to the supply crunch, compared with about $2 an ounce in Hong Kong, Singapore and Thailand.
Banks and other official trading agencies in Singapore and Thailand that had supplied gold to their Indian counterparts have stopped due to India’s new rules.
But smaller dealers and retailers say they have been selling more to Indian customers than ever before, in jewellery and other forms.
Brian Lan, managing director of Singapore-based dealer GoldSilver Central Pte Ltd, said he has sold about 10 kg (22 lbs) of gold to a single Indian customer and gets multiple similarly big orders on some days.
“We have Indian dealers buying from us directly on a regular basis,” said a second Singapore dealer. “They say they have their own means of taking it in without getting caught.”