In an extraordinary development, India’s importation of gold and silver from the United Arab Emirates (UAE) has surged by an impressive 210%, reaching a staggering $10.7 billion in the fiscal year 2023-24. This significant increase comes even as the nation’s overall imports experienced a decline of 9.8%, totaling $48 billion for the same period, according to data compiled by the Global Trade Research Initiative (GTRI).
The Directorate General of Foreign Trade (DGFT) has been instrumental in this surge by imposing restrictions on gold jewellery imports from all countries except the UAE. This strategic move has notably contributed to the spike in imports from the UAE, as highlighted in the GTRI report.
Reassessing Concessional Customs Duty Under India-UAE CEPA
The report emphasizes the urgent need to revisit the concessional customs duty rates under the Comprehensive Economic Partnership Agreement (CEPA) between India and the UAE. This revision is essential to mitigate the arbitrage opportunities driving the import surge and to address the current account deficit by curbing excessive imports.
The facilitation of gold and silver imports through the India International Bullion Exchange (IIBX) in Gift City has further fueled this import boom. Previously, only authorized agencies were permitted to handle such imports, but the new policy allows private firms to participate, thereby amplifying the volume of imports.
The High-Stakes Trade in Precious Metals
Ajay Srivastava, a former Indian Trade Service officer and the founder of GTRI, pointed out the inherent risks in the trade of gold, silver, and diamonds. These commodities, due to their low volume but high value, are particularly susceptible to misuse, especially given the high import duties in India.
“Low tariff imports of gold and silver primarily benefit a select group of importers who capitalize on tariff arbitrage, without passing on the benefits to consumers,” Srivastava noted.
Under the India-UAE CEPA, which was enacted in May 2022, India agreed to import 200 tonnes of gold annually from the UAE at a 1% tariff concession, reducing the duty to 14% compared to the 15% Most Favoured Nation (MFN) tariff. This seemingly minor 1% difference translates to a substantial ₹71,000 per kilogram of gold, making it highly profitable to import gold bars from the UAE. Consequently, gold imports from the UAE surged by 147.6%, from $3 billion in FY2023 to $7.6 billion in FY2024, resulting in a revenue loss of ₹635 crore for India in FY2024.
The Impact of DGFT Restrictions
The DGFT’s current restrictions on MFN duty imports are expected to channel all jewellery imports through the UAE in the near future. This policy shift adversely affects jewellery imports from other countries, such as Indonesia, which are permitted under the ASEAN-India FTA.
A Commerce Department official explained that the recent imposition of import restrictions, including mandatory import authorizations on gold jewellery, aims to monitor the import of gold sidings—a minor component of jewellery items. “The sharp increase in the imports of gold sidings suggests potential misuse of India’s FTAs and duty concessions extended to certain countries. These import restrictions have been implemented for better oversight,” the official stated.
However, Srivastava contended that this rationale does not fully justify the import restrictions on other jewellery items, indicating a need for a more comprehensive review of the policy.
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