India’s imports of gold and silver from the UAE – its Free Trade Agreement (FTA) partner – increased a whopping 210 per cent to $10.7 billion during 2023-24, while overall imports declined 9.8 per cent to $48 billion in the fiscal, per figures collated by research body GTRI.

The restrictions imposed by the Directorate General of Foreign Trade (DGFT) on imports of gold jewellery from all countries, except UAE, has also contributed to the spike in its imports from the UAE, the report noted.

There is a need to potentially revise the concessional customs duty rates under the pact to mitigate the arbitrage driving this surge and also check current account deficit by reducing imports, the report added.

“India’s facilitation of gold and silver imports by allowing private firms to import from the UAE through the India International Bullion Exchange (IIBX) in Gift City has also added to the import surge. Previously, only authorised agencies could handle such imports,”  the report said.

Trade in gold, silver, and diamonds has been prone to misuse due to their low volume but high value and high import duties in India, said Ajay Srivastava, former Indian Trade Service officer and  Founder, GTRI.

“Low tariff imports of gold and silver only benefit the few importers who keep all profits arising through tariff arbitrage and never pass it to consumers,” he said.

Under the India-UAE CEPA, which came into force in May 2022, India agreed to import 200 tonnes of gold annually from the UAE with a 1 per cent tariff concession, reducing the duty to 14 per cent under CEPA compared to a 15 per cent MFN tariff.

“This 1 per cent difference amounts to ₹71,000 per kilogram of gold, making it profitable to import gold bars from the UAE. Gold imports from the UAE rose by 147.6 per cent, from $3 billion in FY2023 to $7.6 billion in FY2024, causing India to lose ₹ 635 crore in revenue in FY2024,” the report noted.

India’s jewellery imports increased 187.6 per cent to $3.3 billion in FY2024 while Imports from UAE have increased by 290 per cent to $1.35 billion in FY2024. 

DGFT restrictions

With current DGFT restricting even MFN duty imports, we expect all jewellery imports to be routed through UAE in near future, the report said. This policy negatively impacts jewellery imports from countries like Indonesia, where imports are allowed under the ASEAN-India FTA.

A Commerce Department official pointed out that the recent imposition of import restrictions, in the form of mandatory import authorisations, on gold jewellery was to essentially keep a tab on import of gold sidings, which is a very small component of jewellery items.

“The sharp increase in the imports of gold sidings indicates that things are not quite right and there may be a misuse of some of India’s FTAs and duty concessions extended to certain countries. Import restrictions have been imposed for better monitoring,” the official said.

But that does not explain the import restrictions imposed on other jewellery items, Srivastava said.