Sleuths of the Department of Revenue Intelligence (DRI) and other government agencies are now closely monitoring Kodiyakarai village in Tamil Nadu’s Nagapattinam district.

The village was a haven for Lankan Tamil separatists and gold smugglers until Rajiv Gandhi was assassinated by the LTTE in 1991. Smuggling activities stopped thereafter and also Kodiyakarai Shanmugam the kingpin of smuggling activities, was arrested in connection with the former Prime Minister’s killing.

Now, this village is on the radar of smugglers and government officials after the DRI seized 21 kg gold two months ago. On September 1, it seized another 16.5 kg of gold being smuggled on a two-wheeler. Interestingly, four persons arrested in this connection were found to be relatives of Shanmugam. Reports say officials thwarted attempts to smuggle in some 15 kg gold in 2011.

Government officials, particularly from the police and Customs Departments, are worried over the increasing incidence of smuggling. They fear that anti-national elements are entering the country through Kodiyakarai. There are reports that gold is being smuggled into the country though the Nepal border, with some consignments coming in from China.

More red tape, corruption

No doubt, the Centre has been forced to curb imports of gold due to trade imbalance leading to the current account deficit. The Government and officials of Finance and Commerce Ministries have tried to dampen the enthusiasm for imports by raising the import duty on gold thrice this year to 10 per cent. The RBI also has done its bit, coming up with norms that require 20 per cent of imported gold to be exported as a value-added product.

This stipulation, brought in at the end of July, paralysed imports for over 45 days as the Customs Department did not have a system in place to monitor them. These curbs have, in fact, made things easy for smugglers and those indulging in illegal trade, going by what the trade says. An official of a trading firm even blogged that you can get gold delivered at your doorstep! One hears that recently a group of smugglers got together in South Africa to explore how best to take advantage of the loopholes in the Indian Customs Department. Maybe, the Centre got wind of the plan and that’s why the Directorate-General of Revenue Intelligence issued a red alert recently to the Customs Department to watch out for gold smuggling?

However, what cannot be wished away is that the Government seems to have offered an opportunity to the smugglers to have a field day, through policies framed in sheer panic. Aren’t such curbs paving the way for more red tape and corruption?

Fears of hawala trading

The issue does not stop with smuggling alone but its effects. Smuggling of gold could promote hawala trading. India is trying to become a signatory to “Responsible sourcing of gold” that will ensure that no precious metal from any area under conflict or where rebels hold sway will enter the country. But the measures taken in the last few months could result in Indian consumers indirectly funding terrorist organisations through smuggling of gold.

While the Government was carrying out measures to curtail gold imports, it has been in touch with the trade and jewellers. Why did it not listen to saner voices that suggested allowing imports through canalised agents? Restrictions could be effected through these agencies rather than totally paralysing the trade.

One way could be by asking the agencies to slow down imports and squeeze the shipments. Currently, we may not be feeling the pinch in gold supply. Demand is being met through gold recycled from jewellery sold by consumers, who are happy to sell at current prices of over Rs 30,000 for 10 gm. Some jewellers are managing with their existing inventories. But how long can things continue like this? The marriage season is approaching and with kharif harvest round the corner, demand could pick up. When that happens, the issue could go totally out of the Government’s hands.

It is surprising why the Government has not thought of controlling imports of coal and crude oil that are also contributing to the trade imbalance. We have surplus coal but import huge quantities to subsidise power supply. Is the reluctance to do something about this have to do with populism? Sadly, the economy has taken a back seat to politics. As long as this continues, Government officials will have to be concerned about many such Kodiyakarais.

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