So it has happened! Import duties on gold and silver have risen to 15 percent from 6 percent.
India does not have gold and silver mines, all our gold and silver is imported.
This is a move to save foreign exchange. It has been tried before, and rolled back too since it didn't succeed or had other unintended consequences.
Other consequences, like what? Well, when duties are so high, the arbitrage for smugglers becomes attractive. At 15 percent, the arbitrage is salivating.
Gold is especially easy to smuggle among all the items that are smuggled worldwide. It has very high value to weight / volume ratio. It can be cast and recast into any shape you want. And there is a thriving market in it across the world, after all it is the oldest form of wealth known to mankind.
Now watch all jewelers perk up, especially the kerala based ones. No doubt the newly elected government there is already setting up a gold smuggling coordination cell, not for curbing it silly, but for aiding the smugglers! Kerala is especially famous for this. No doubt others will follow.
What could be the scale of this smuggling? The world production of gold is about 3000 tons per annum. India traditionally consumes about one third of the world production. We are talking of the Indian retail market here. Which is about a thousand tons.
Let us assume twenty percent of this is smuggled. That is 200 tons.
India does not have gold and silver mines, all our gold and silver is imported.
This is a move to save foreign exchange. It has been tried before, and rolled back too since it didn't succeed or had other unintended consequences.
Other consequences, like what? Well, when duties are so high, the arbitrage for smugglers becomes attractive. At 15 percent, the arbitrage is salivating.
Gold is especially easy to smuggle among all the items that are smuggled worldwide. It has very high value to weight / volume ratio. It can be cast and recast into any shape you want. And there is a thriving market in it across the world, after all it is the oldest form of wealth known to mankind.
Now watch all jewelers perk up, especially the kerala based ones. No doubt the newly elected government there is already setting up a gold smuggling coordination cell, not for curbing it silly, but for aiding the smugglers! Kerala is especially famous for this. No doubt others will follow.
What could be the scale of this smuggling? The world production of gold is about 3000 tons per annum. India traditionally consumes about one third of the world production. We are talking of the Indian retail market here. Which is about a thousand tons.
Let us assume twenty percent of this is smuggled. That is 200 tons.
Gold is currently at 4700 dollars an ounce, which is 150,000 dollars a ton, which is about 1500 crore rupees. The cost of 200 tons works out to 3 lakh crores, and the import duty margin at 15 percent is 45000 crores. This is not counting the gst arbitrage which at 3 percent is another 9000 crores.
Now once that gold comes in, money has to be sent out through the hawala channels. Instead of money, often it is a reverse flow of goods. Like drugs. Originating from the golden triangle or golden crescent, flowing through india. Or it could be other goods.
There are second order and third order consequences to such a decision.
All governments hate gold. It is for the same reason that all religions hate sex. It is a force they cannot control.
We have highly interesting times ahead, increase in duties on gold was only the first salvo.
Meanwhile, the price of my gold and silver holdings would have risen by 9 percent. Let me go check.
Now once that gold comes in, money has to be sent out through the hawala channels. Instead of money, often it is a reverse flow of goods. Like drugs. Originating from the golden triangle or golden crescent, flowing through india. Or it could be other goods.
There are second order and third order consequences to such a decision.
All governments hate gold. It is for the same reason that all religions hate sex. It is a force they cannot control.
We have highly interesting times ahead, increase in duties on gold was only the first salvo.
Meanwhile, the price of my gold and silver holdings would have risen by 9 percent. Let me go check.
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