Kerala has claimed many firsts in different fields; from the first elected communist government in the world in the 1950s, to the more recent Kerala model for effectively fighting COVID-19. Recently, it probably added another one to the list, though dubious, by recording India’s first gold smuggling through the diplomatic bag.
When the airport customs officials seized 30 kg of gold, hidden in sanitary pipes, in a packet addressed to one of the officials at the United Arab Emirates (UAE) consulate in Thiruvananthapuram earlier this month, they stumbled on a racket with international ramifications. The case is now with the National Investigations Agency (NIA) as the offence involves national security and subversion of the country’s economy. On July 12, two of the four prime accused, Sandeep Nair and Swapna Suresh, were arrested from Bengaluru.
Swapna Suresh was employed with the IT department which comes under the direct charge of Kerala Chief Minister Pinarayi Vijayan. What further embroils the government is that the former IT secretary M Sivasankaran, a trusted Vijayan aide, is allegedly close to some of the accused in this case. There is increasing clamour for the resignation of the Chief Minister, owning up moral responsibility for the goings-on in his office.
The NIA has hinted at probing whether terrorist group Islamic State has a link with the gold smuggling, the proceeds of which are used to finance terrorism and other subversive activities. Gold has traditionally been a very effective vehicle to transfer money, and its use by the terrorists makes gold smuggling a dangerous concoction, its primary ingredient being the insatiable appetite for the yellow metal.
South India dominates India’s gold jewellery consumption, accounting for nearly 40 percent of the total volume, and also the highest per capita gold consumption. According to World Gold Council data, India imported over 830 tonnes of gold in 2019. An estimated third of it is consumed in Kerala, which has a penchant for 22-karat gold jewellery, compared to 18-karat and gold of less purity in the rest of India. On an average a Keralite woman is said to wear 30 gms of gold.
The obsession with gold is deeply-rooted in the state’s culture. Jewellery purchases are driven by tradition, festivals and other important family and societal occasions. A large part of purchases are for weddings, where gold is an essential part of the dowry. Although outlawed by law, dowry in the form of gold is a popular means for transferring wealth. An average middle class Kerala bride is estimated to take 320 gm of gold to her new home, which is the highest in the country.
Apart from the feel-good factor that gold assets provide, people also use their holdings to raise emergency cash. As outright sale is not an option in view of the emotional bonding, households often pledge gold to raise loans. It is estimated that in 2019, Muthoot Finance and Manappuram Finance, two major NBFCs of the state, between them held over 230 tonnes of gold as security, out of a total of 1,200 tonnes for the entire country.
India’s diversity plays an important role in determining retail gold price as each region is characterised by different seasonal patterns of demand and consumer tastes. With the demand and consumption both being high, gold always yields better prices in Kerala, and this acts as an additional incentive for the growth of a grey market in the state. No wonder, Kerala accounts for the maximum haul of smuggled gold.
In fact, a major part of the gold industry operates in the grey market, which is fostered by anonymity, lack of price transparency, purity issues, taxes and supply sources. Restrictions on the inflow of gold have created significant market distortions, which result in a surge in domestic gold premiums, making gold smuggling highly attractive.
Gold attracts an import duty of 10 percent plus a three percent tax. One kilogram of smuggled gold is estimated to save at least Rs 5 lakh in duties. Carriers get a share, which is generally 10 percent, with another 10 percent going for ground handlers, which means that the rest of it is all profit.
A variety of routes are used to smuggle gold into India. The majority, estimated between 65 and 75 percent, comes by air, around 20–25 percent by sea, and 5–10 percent by land. Most of the gold flown into India comes from West Asia, notably Dubai.K Raveendran is a senior journalist. Views are personal.