On paper imports of gold into India this year are dramatically down due to penal tax rates of 10 per cent. But in reality the gold is still getting into the country by a perfectly legal backdoor: expatriate Indians returning after more than six month’s absence are legally permitted to bring in one kilogram of the precious metal.
Eighty passengers on a Dubai to Calicut flight brought 80 kilograms of gold, an Indian newspaper reported last week. They still have to pay import duty in convertible foreign currency of six per cent per cent ad valorem plus a three per cent tax. But that still leaves a tidy profit on an AED142,250 kilo bar.
Then again not everybody declares the gold , which is illegal. Small bars and coins of the precious metal are easly hidden and an easy additional profit for returning Indian expatriates.
For Dubai this is a case of returning to the past. Before Dubai struck oil the smuggling of gold into India was a big business, albeit a trade that only became illegal when dows entered Indian coastal waters with their glittering cargoes.
At that time tax was also a big issue for the gold market in India, and pretty much for the same reason, economic mismanagement. This year the Indian Government has been taxing gold to help dampen imports and stop the run on the rupee.
Gold price impact
Arguably the Indian Government has been far more effective in crashing the price of gold than saving its currency.  But as we have commented on this website before this is a very artificial hiatus in the gold price that will prove to have been a temporary and excellent buying opportunity.
India will get its gold through whatever channels and the rest will go to China to feed an instatiable demand for the monetary metal as their own money suffers from chronic inflation. India has not lost its love for gold and smuggling the stuff is second nature in such an autarkic economy.