“Grey business in gold is a big problem for honest jewellers. In India, every showroom has a different price for the same piece of gold jewellery as some jewellers procure the inputs from the grey market. To restrain smuggling, the customs duty on gold bars in India should not be more than 3-4% (down from 7.5% now),” said Abdul Salam KP, vice chairman of Malabar Gold and Diamonds. He runs India’s second-largest gold jewellery company in terms of revenue, (second to Tanishq) with 24 outlets in Dubai itself, out of 58 in the UAE. Salam, however, quickly adds that the recent trade pact – the Comprehensive Economic Partnership Agreement (CEPA) – will bolster gold jewellery exports from India to the UAE, and his company plans to add more retail outlets in Dubai.
In addition to the concealment of gold by non-resident Indians and Indian tourists returning from the Gulf, there exists a well-oiled system of smuggling gold bards, which are used to manufacture jewellery back in India. According to a customs officer, some of the innovative methods deployed by smugglers of late include concealment of gold pastes in face masks and hiding gold granules in containers of Tang orange instant drinks shipped by couriers.
A commerce ministry officer connected to the negotiation process of the CEPA said the trade pact had weighed in the smuggling angle seriously. “For the UAE, we have decided to give 1% concession of import duty on gold bars. So the new duty at the current level will be 6.5%. In the case of gold jewellery, the current import duty is 20%. As part of the CEPA, we are reducing it from 20 to 15% in a span of five years,” he said, however, adding that there will be a limitation to the volume for availing such a concession. “India will allow import of gold bars only upto 2.5 tonnes a year. It will initially start with 0.5 tonnes in the first year which will keep rising till it reaches 2.5 tonnes (maximum limit) in the fifth year,” the officer added.
Indians, Pakistanis and Bangladeshis are the main buyers of gold in Dubai, and many are buying the precious metal as an investment, according to retailers who ET spoke to. Gold is around 10-12% cheaper in Dubai than in Indian, which is an incentive for rich Indian families to even fly to the emirate to make purchases ahead of family weddings, they explained.
“Gems and jewellery export from India to the UAE is about $10 billion. This should rise to $15 bn in the next two years thanks to the trade pact,” said Colin Shah, chairman of the Gem and Jewellery Export Promotion Council (GJEPC).