Gold smuggling revives in Kerala as economic activity resumes after lockdown eases in India

NEW DELHI - India's southern Kerala state has always had a gold smuggling problem.

The smuggling stopped after the government shut down all economic activity and suspended international flights at the end of March to combat the Covid-19 pandemic.

But as economic activity resumes with curbs being lifted in stages since May, the problem has resurfaced - albeit with a big bang - in the state which is a key route for smugglers.

On July 5, Customs officials, based on a tip-off, found 30kg of gold inside diplomatic baggage at the airport in Thiruvananthapuram, the state capital.

The gold, worth over 130 million rupees (S$2.4 million), was found hidden inside household items like door handles.

Since it involved baggage belonging to a United Arab Emirates diplomat at the consulate-general in Thiruvananthapuram, the local authorities were authorised to open the baggage by the Ministry of External Affairs in the presence of consulate representatives.

"The Customs authority followed the established protocol and procedure and seized a consignment sent from abroad in the name of an official of the UAE consulate in Thiruvananthapuram," said Mr Anurag Srivastava, the spokesman for the Ministry of External Affairs (MEA), in a briefing on Thursday (July 9). "The UAE mission has extended all cooperation to the customs authority in examining the consignment. The matter is presently under investigation."

The UAE has denied any of its diplomats were involved.

India's National Investigation Agency, a federal agency, is now investigating the case, which has turned into a political controversy.

A consultant with the Kerala state government's IT department, Ms Swapna Suresh, who has applied for advance bail to avoid arrest, has been named as a suspect. The state government has dispensed with her services as the opposition demanded the resignation of chief minister, Mr Pinarayi Vijayan. Authorities have so far arrested the person who went to collect the baggage.

Gold smuggling is a major problem for Indian authorities because the yellow metal is prized both as jewellery and as an investment for a rainy day.

In 2019-2020 financial year, Kerala Customs seized around 540kg of gold, double the amount from the previous year.

India remains the second largest consumer of metal despite the fact that it is far more expensive in the country than in many other countries because of high taxes. It attracts 12.5 per cent in Customs duty and 3 per cent in goods and services tax. The high Customs duty, which makes smuggling profitable, is aimed at keeping imports down so that the country can save on foreign exchange and curb the current account deficit.

In 2019, India's gold consumption stood at 690.4 tonnes, according to the World Gold Council. It estimated smuggled gold at 115-120 tonnes.

Many, however, believe that gold smuggling remains subdued notwithstanding the Kerala seizures.

"Yes, smuggling - which unfortunately taints the image of an otherwise economically and socially relevant Indian jewellery sector - will be lower this year. This is on account of logistical constraints that grey channels also face following Covid-19 related disruption in movement of people across borders and weak consumer demand," said Mr Somasundaram P.R., India's managing director of the World Gold Council.

"We expect smuggling volumes to be significantly lower than 100 tonnes that was the average over the last few years," he added.

Goldsmiths, however, are more concerned now about sales as gold prices surge and customers shy away amid the continuing spike in Covid-19 cases. Gold prices have gone up by 17 per cent over the past three months.

"Who will purchase gold jewellery at this moment? Even if a marriage is taking place, people think they may need money for survival," said Mr Surendra Mehta, national secretary at India Bullion & Jewellers Association.