Gold is a timeless investment valued for its stability, cultural significance all across the globe.
Since ancient times, societies have utilised gold as a medium of exchange, which also represents wealth. In last few year, there has been a rise in import of gold from UAE, as confirmed by Indian government report. In this article, we will discuss about the reasons behind this and associated economic concerns.
Economic think tank Global Trade Research Initiative (GTRI) has mentioned in its report: “While India's total imports from the UAE fell 9.8 per cent from $53.2 billion in FY23 to $48 billion in FY24, imports of gold and silver skyrocketed 210 per cent, from $3.5 billion to $10.7 billion.”
“Import of all remaining products fell 25 per cent, from $49.7 billion in FY23 to $37.3 billion in FY24,” the report claimed.
Overall, India's jewellery imports have increased 187.6% from $1.1 billion in FY23 to $3.3 billion in FY24. On the other hand, gold and silver imports from the UAE have increased by 290% from $347 million in FY23 to $1.35 billion in the last fiscal.
Generally, India permits 7% tariffs or customs duty concessions for importing unlimited quantities of silver. In case of gold, 1% concession is applied on 160 metric tonnes of gold.
The astonishing hike in gold and silver impact demands revision of concessional customs duty rates to reduce the arbitrage.
As per GTRI, this sharp increase in gold and silver imports is caused driven by import duty concessions approved by India to the UAE government under the India-UAE Comprehensive Economic Partnership Agreement (CEPA), which was signed and implemented in 2022.
The report further mentioned: “India facilitates gold and silver imports by allowing private firms to import from the UAE through the India International Bullion Exchange (IIBX) in Gift City. Previously, only authorised agencies could handle such imports.”
GTRI Founder Ajay Srivastava said: “High import duties in India on gold, silver, and jewellery at 15 per cent are at the root of the problem. Consider lowering tariffs to 5 per cent. This will cut large-scale smuggling and other misuse.”
He warned that trade in gold, silver, and diamonds in India are subjected to more misuse, especially due to their low volume and high value and import duties.
“Low tariff imports of gold, silver only benefit few importers who keep all profits arising through tariff arbitrage and never pass it to consumers,” he said.
The GTRI report claimed: “The large 7 per cent tariff arbitrage resulted in a loss of revenue for India of Rs 1,010 crore in FY24. Revenue loss will increase as India has committed to make tariffs zero on unlimited quantities of silver from the UAE within next 8 years.”
Thus Srivastava suggested the government to implement few essential measures to help India “balance its trade policies, protect domestic revenue, and ensure fair competition in the import of precious metals and jewellery.”
GTRI suggested: “At least, implement yearly import quotas (tariff rate quotas) for silver, similar to those for gold, to control the volume of imports and prevent revenue loss.”
It also asked “to tighten regulations around the India International Bullion Exchange (IIBX) at Gift City to control the volume and nature of precious metal imports and the exchange should not allow country-based exemptions.”
Amidst this import hike, Indian government should thoroughly check the claimed value addition by Dubai-based refiners in the import of gold and silver to ensure compliance with CEPA rules.