Gold smuggling on the rise,foreign exchange double to 5-6% in Havala.
Premiums on unofficial foreign exchange double to 5-6 per cent; gold smuggling on the rise
Source:BS
(Friday, August 20, 1999)
Anil Padmanabhan in New Delhi
Havala, or unofficial foreign exchange, premiums have almost doubled to 5-6 per cent and has been accompanied by an increasing trend in gold smuggling.
This is despite the fact that normally during the onset of general elections there is a step-up in the inflow of illegal foreign exchange largely towards funding election related activities. As a result, the premiums stay depressed at this point of time.
In fact, officials compare the current level of premiums to those that prevailed in the initial phase of the crisis years of 1991. "While the official (or market determined) exchange rate is in the range of Rs 43.30-40, the havala rate is around Rs 45.50-46. We have never seen such a trend at the time of elections," officials said.
According to them, the main reason for the step-up was a sudden spurt in smuggling. Officials argue that the domestic prices have not kept pace with the sharp fall in international prices of the yellow metal and as a result have left room for arbitrage operations. "Normally, there is a two-month lag in the period of price adjustment between domestic and international prices," they added.
In addition, the government had in January increased the import duties on gold duties on import of gold from Rs 250 to Rs 400 per 10 gram. The local duties, imposed at different rates by state governments, only further distorted the price differential vis-a-vis imports.
Some of the state governments have also introduced a turnover tax, which has had a cascading effect on the prices. For example, the Karnataka government converted the 0.5 per cent single point sales tax to a multiple point one and imposed another one per cent turnover tax.
A back of the book calculation shows that a gold smuggler stands to make marginally more profits through illegal imports as against routing the yellow metal through chosen couriers and using the NRI window (and pay the import duty).
In October 1997, when the havala rate was Rs 40 per dollar (as compared to the official rate of Rs 38), a gold smuggler earned a profit of Rs 216 per 10 gms of illegal imports. Alternatively, if he nominated couriers and utilised the NRI route, the profits for the same quantity of imports worked out to Rs 429. The profits get only enhanced when the local duties and the marginally higher level of domestic prices get factored in.
Senior officials maintained that the gold catches have increased in the recent past. They were however puzzled at this trend, especially in the context of the fact that gold inflows through the official channels were on the rise this year.
Initial flows had indicated that gold flows in this year would ebb. Officials also pointed out they were handicapped for the want of adequate and timely information about gold imports.
For example, the official gold imports estimated provisionally for May at 44 tonnes was revised to 57 tonnes a month later. Similarly, the initial estimate for June of 81 tonnes has been pruned to 57 tonnes. As a result, the increase in gold imports at the end of the first quarter, has been scaled down from 28 per cent as reported earlier to 11.2 per cent.
Officials are however perturbed at the level of imports even at this level, especially in a year in which the oil import bill is expected to touch a record $9.5 billion in the wake of the runaway rise in international prices of crude. |
