Gold Smuggling Surges in India as Festive Demand Drives Record Prices and Supply Shortages

Customs officials reported an increase in smuggling activities in recent weeks. (Representative)

Mumbai:

India is experiencing a surge in gold smuggling ahead of major festivals as record-high prices and supply shortages create lucrative opportunities for illegal traders, according to government and industry officials who spoke to Reuters.

The smuggling of gold into India, the world's second-largest consumer of the precious metal, had previously declined following the government's decision to reduce import taxes from 15% to 6% last year. However, officials from Customs and the Directorate of Revenue Intelligence (DRI) have noted a significant increase in smuggling attempts in recent weeks, with numerous interceptions at airports across the country.

A bullion dealer from Chennai explained that while smuggling gold into India and converting it to cash was previously time-consuming and risky, the current combination of strong festival demand and limited supply has dramatically shortened this process to just a few hours.

The upcoming Dhanteras and Diwali festivals this month are traditionally considered auspicious times for gold purchases, representing some of the busiest periods for gold sales in India.

Gold prices in India reached a historic peak of Rs 128,395 per 10 grams on Thursday, representing a remarkable 67% increase this year alone.

At these prices, smuggling a kilogram of gold has become extraordinarily profitable for those operating in the grey market, with potential margins exceeding Rs 1.15 million by evading the 6% import duty and 3% local sales tax.

"The rising gold prices are creating unprecedented profits for smugglers. The financial incentives are now extremely attractive," revealed a senior bullion dealer from Mumbai who requested anonymity.

Prior to the duty reduction in July, smugglers were earning approximately Rs 630,000 per kilogram.

According to the bullion dealer, investors are aggressively purchasing gold, creating supply constraints and driving premiums higher.

A jeweler based in Kolkata noted that banks are struggling to meet the full demand and are charging exceptionally high premiums on available inventory.

Indian dealers were this week offering gold at premiums of up to $25 per ounce above official domestic prices, the highest premium recorded in more than ten years.

During the 2024/25 fiscal year ending in March, government agencies documented 3,005 cases of gold smuggling and confiscated 2.6 metric tons of the precious metal.