More arrests have followed in the Kerala gold smuggling case. Gold worth around Rs 14.82 crore was seized last year by the Central Board of Direct Taxes (CBDT) last year at Thiruvananthapuram.

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India’s penchant for this precious metal means that gold smuggling cases are quite common. There has been a rise in gold smuggling in India since 2013, here’s a look at why that’s the case.

What is gold smuggling?

Smuggling refers to the act of bringing goods through illicit channels into a nation. This is done to either transport illegal goods or bring legal goods into the country without paying duties and taxes. Many items are smuggled so the import and customs duty on such items can be avoided, keeping them cheaper for resale.

Gold is often smuggled in from locations where gold is cheaper due to lower taxes to countries like India where there is high demand. Smuggling is prevalent in India since the country has a large demand for gold.

Most of the demand is met through imports, creating opportunities for smugglers to earn a quick buck by bringing in gold stocks through illicit channels.

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Canada-based group IMPACT found in one of its reports that nearly 25 percent of all gold coming into India does so through illegal channels. With a total import volume of 800-900 tonnes, IMPACT estimates that around 200 to 225 tonnes of gold arrive in India through smuggling.

Why is gold smuggled in India?

After the Gold Control Act was repealed in the 1990s, individuals were now free to import gold in forms other than jewellery as well. The pent up demand ushered in a boom for gold imports in the country. Initially, the move did put brakes on the gold smuggling network.

However, the imports attracted high fees and duties when entering India. As such, an illegal network for gold smuggling was quickly established and grew in popularity.

The government at the time brought in reforms that reduced the customs paid on gold imports. A cap of Rs 450 per 10 gram of gold was put on duties levied on gold imports, and the move quickly led to crashing the gold smuggling trade.

The seizure rate of just 2 percent for illicit gold does little to discourage smugglers as well, who often use mules to do the job. Mules are often underprivileged or needy individuals that are coerced or forced into smuggling gold for petty change.

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What changed?

In 2013, the central government removed the cap on duties of gold imports and the smuggling of gold was back with a bang. Today gold imports command additional fees of nearly 20 percent through taxes and duties. With the price of gold skyrocketing over the past couple of years, the potential for easy and large profits for smugglers grew tremendously.

Most of the smuggled gold in India comes through the United Arab Emirates, which accounts for 75 percent of the gold coming into the country. India’s large, and mostly unmanned borders, to the east also help smugglers arrive into the country by other routes.

The government and enforcement authorities are taking many measures to stem the problem. They are even trying to use the Unlawful Activities (Prevention) Act to prosecute those individuals who are caught trying to smuggle gold into the country.