KOLKATA: A sharp rise in smuggled gold can damage India's jewellery exports as illicit imports may be sourced from illegal mines, which attract punitive trade measures from the US - the market that absorbs nearly 60 per cent of gem and ornaments shipped out of India.
The stakes are high as jewellery exports from India stood at Rs 1,53,862.94 crore for the April 2013 - January 2014 period. "If smuggling increases, there are chances that irresponsible, or conflict, gold may enter India.
And if any US importer finds that there is illegal gold in the consignment, then the Indian supplier will be dragged to the US court," Pankaj Parekh, vice-chairman, Gem & Jewellery Export Promotion Council, told ET.
US importers carry out due diligence of the chain of raw materials and the process of manufacturing of the supplier. If they detect any violation, they have the option of suing the Indian exporter according to the Dodd Frank Act in the US court of law. Most of the US importers carry out such due diligence intermittently but without informing the exporters.
"Fortunately, till now, the US has not been able to find any false undertakings from the Indian exporters. Though the exporters get gold from banks and nominated agencies that are accredited to London Bullion Market Association, chances of conflict gold entering into the Indian market and later being exported to the US cannot be fully ruled out," Parekh said.
Conflict gold is the illegal gold mined by rebel outfits in Africa and sold clandestinely in the global markets to fund their wars against ruling governments. The India Bullion & Jewellers Association (IBJA) is worried about smuggling.
"There is no import duty on smuggled gold and the smugglers enjoy good margins. Until and unless the government relaxes the 80:20 rule and reduce import duty, smuggling will go up," said Kapil Parekh, executive director, IBJA.
In fact, World Gold Council has estimated that nearly 150-200 tonne gold has entered Indian market in 2013 through the illegal route. The jewellers had made a last ditch attempt to persuade the government to bring down the import duty to 2 per cent from 10 per cent in the last parliament session of UPA-II government, which ended on February 20.
But it did not yield any result as the government was concerned about the widening current account deficit. Bachhraj Bamalwa, member of All India Gem & Jewellery Trade Federation, said: "Once the election notification is out, the government cannot reduce the import duty. But the Reserve Bank of India can ease the 80:20 rule even if the election notification is out."
According to the rule, gold importers have to keep at least 20 per cent of their imported quantity for export purpose.
Source : economictimes.indiatimes.com