Will Bangladesh be a permanent transit point?
GOLD smuggling in Bangladesh has reached such an alarming stage that this year the total amount of gold haul is likely to cross the previous record of 520 kg in 2013. It was only 25 kg in 2012. Almost 300 kg gold is smuggled via our territory per day, which is about eight times our domestic demand. Gold seizure has become routine at our international airports in Dhaka, Chittagong and Sylhet. This confiscation is a loss for smugglers, who smuggle more to recover it. How our country will compensate for the losses is a critical question.
Smuggled gold that enters our country is rarely used for domestic consumption. Our domestic demand is about 12 metric tons annually, which is mostly met from gold carried by our expatriates from Singapore, Malaysia, Dubai and other Middle Eastern countries. If 100 of 10,000 expatriate passengers bring the permitted amount of 300 grams each, under baggage rule, a daily inflow of 30 kg could sufficiently meet our local demand in addition to the recycled amount. It was reported that some 660 kg entered through declaration in April 2014. If the smuggled amount enters our small market, won't that lead to a market failure? Apparently, smuggled gold goes to the giant Indian markets which fulfill the 1,500 metric tons of annual demand there. Smuggling has increased farther after a gradual rise in import duty in India since mid-2012.
The government of India raised tariff on gold to 10% in August 2013 after a frequent step-up from 2% in July 2012, aiming to check rush in gold import during a severe current account deficit in 2012. Its gold import was over $50 billion, which was equivalent to 3% of GDP. This tariff barrier cut its merchandise import sharply to 19 metric tons in November 2013 from 162 metric tons in May 2013. Accordingly, India became the world's second largest gold market in 2013 from its largest status earlier. Meanwhile, smuggling returned to India after 23 years, and increased at a high rate as reported in the Indian dailies. Moreover, the smugglers also managed our corrupt officials of customs, police and civil aviation for sending illegal consignments to India. We are recognised as a gold smuggling route in local and international media.
Meanwhile, our government has put restrictions on legal inflow of gold in the national budget for 2014-15. It has raised the duty to Tk. 3,000 per bhori from Tk. 150 per bhori. The ceiling of non-taxable ornaments was also cut from 200 to 100 grams. This policy change corresponded to the Indian policy to save our legal domestic inflow. However, it has almost blocked our legal channel, because of which smuggled gold is now sold in the local market, too. The smuggler to the Indian market gets a comparative margin of Tk. 325,000 per kg for non-taxed entry into Bangladesh. It was reported on April 2 that a kg of gold smuggled to India leads to a net margin of more than Tk. 200,000. If such a large profit margin intensifies it is likely to negatively impact our economy.
The Indian gold market is said to be becoming comparatively lucrative due to fall in gold's domestic price, despite a large fall in international price. The price of 10 grams of gold in the Indian market came down by only Rupees 4,000 -- from Rupees 30,000 in September 2011 to Rupees 26,000 in November 2014 -- whereas it fell from $660 to $400 in international market. The ornamental jewelry and religious festivals created demand for which smuggling increased over the past two years in the largest but currently protected market.
There are 14 syndicates involved in gold smuggling to India via Bangladesh, as per a report in a local newspaper a few months ago. The level of smuggling is expected to rise as India has so far not hinted at reducing import duty on gold, and a kg of gold today is reported to earn profits larger than that of five kg in the past.
The payment for gold entering our country is mostly made through hundi business, which also expands our black economy. If half of the $5 billion for 100 metric tons smuggled gold is paid from our sources, it will add at least $2 billion to capital flight a year. The smugglers find it easy in an economy with high inflow of remittances. Also, repayment against gold is often made with goods by Indian counterpart like cattle for bullion. In spite of the intricate route of domestic and international smugglers, our customs and police officials often seize gold consignments. Reportedly, many of our government officials are also arrested for their alleged involvement with the smuggling network.
Gold smugglers will lose incentives of using our territory if at least 5% of their consignments or 15 kg can be seized daily. No godfather has so far been arrested, and most of the arrested carrier persons were also freed on bail. Nevertheless, we expect to stop smuggling through our airports because they are protected zones. In this regard, some digital vigilance, strong police-custom alliance and participatory incentive would increase gold seizure. We expect a political pledge for extensive regulatory enforcement to put an end to gold smuggling.
The writer is Associate Professor and Chairman, Department of Economics, Comilla University.
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