Hidden Gold: The Alarming Rise of Smuggling in India

Last year, an unbelievable heist known as Project 24 Karat occurred at Canada’s Pearson International Airport. Clever thieves targeted a massive 400 kg shipment of gold from Switzerland. With the help of airline employees and forged documents, they walked right into the Air Canada Cargo terminal and made off with the entire consignment worth about $20 million. Authorities only realized what happened when the gold was reported missing.

Despite several arrests, tracking down the missing gold remains a challenge. Smuggled gold bars and coins often get melted down, erasing any identifying marks that could trace them back to their original source. Investigators now believe that some of this stolen gold has likely been smuggled into India.

Why India?

India has a deep love affair with gold. No Indian wedding, celebration, or festivity is complete without it. This passion for gold drives India’s average annual demand to about 800,000 kg. However, India produces just over 1,000 kg of gold each year, primarily from the Hutti Gold Mines, forcing the country to import vast quantities to meet the shortfall.

This creates a gold smuggler’s paradise. Importing such vast quantities of gold requires significant foreign currency, putting extra pressure on the Current Account Deficit (CAD), which occurs when a country’s total imports exceed its exports. To manage this, the government adjusts the import duty on gold. When gold imports soar, they hike the duties to discourage buying. However, higher demand and lower supply push up gold prices, encouraging smugglers to bypass legal channels and avoid paying duties. Smuggled gold comes in cheaper and can be sold at higher prices, eventually mixing with legally imported gold and finding its way to jewellers.

Smugglers cleverly use Special Economic Zones (SEZs) to sneak gold into India. SEZs offer exemptions from customs duties and taxes on goods meant for use within the zone or for export. Gold imported into an SEZ can bypass the usual hefty import duties, making it an attractive loophole for smugglers.

Here’s how they do it: Smugglers overreport the amount of gold they’re bringing into the SEZ. For instance, if they’re importing 5 kg of gold, they’ll declare it as 20 kg, allowing them to trade in a higher amount of gold duty-free. Authorities are less likely to question the shipment’s weight if it’s mixed with imitation jewellery and other metals alongside the real gold.

Once the gold is inside the SEZ, smugglers pretend to export the same amount they declared. A SEZ company dealing in gold arranges for Passenger A to carry jewellery in their hand luggage, ostensibly for export. Passenger A might travel abroad via a connecting domestic flight. Meanwhile, Passenger B, with a bag full of imitation jewellery, boards a different domestic flight from the same airport. Both passengers pass security checks and then swap the contents of their bags in a secluded spot like a washroom. Passenger A carries the imitation jewellery abroad, while the actual gold exits the SEZ and enters the domestic market through loopholes.

Corrupt officials, who turn a blind eye for a bribe, often back this scheme. This is how smuggled gold seamlessly blends into the legal market. Transactions leave no trace because the illegal gold trade often uses