Recently there is more talk about Gold smuggling and arrests there of. Gold Smuggling is one of the biggest illicit activities happening in Kerala. However, Kerala is not all alone in this. India is one of world’s biggest gold smuggling hubs.India has been identified to be the biggest nerve point in converting illegal gold into legal one. But within Indian figures, Kerala is likely to take a position amidst the first five. Mumbai is the biggest hub for gold smuggling in India, followed by Delhi (not exactly Delhi City, but the zone as Indo-Nepal border is the most active gold smuggling channel and lot of illicit gold make Noida and Eastern NCR area as its hub). Mostly likely Kerala could be third most active zone. Around 15% smuggling in India takes place in God's own country. Mumbai-Nagpur Belt holds around 28%, while Delhi NCR around 22%). The following are three factors for smuggling to succeed. Higher Demand for the product Less/restricted supply channel for the product Price difference/higher margin for smuggled products Why is a high demand of Gold in Kerala? Cultural affinity Generally Indians have extreme cultural affinity to Gold and most of our savings, reserves and every monetary expression is linked to Gold. Indians in general believe Gold as the best saving form. Now within India, South India has much more stronger affinity to Gold than North India or East India. Within South India, Kerala is extremely obssessed with Gold. The gold craze of Malayalees are well known. For any function or event, gold is mandatory in Kerala culture. Gold is intergal part of a Malayalee’s life. Right from the birth to death, Malayalees associate gold with every stage of their life. When a baby is born, the first thing we do is giving a concoction of Honey with gold particles (Thenum Vayambum) to the baby. During the naming ceremony, golden bangles and chains are adorning the baby for the first time. The first letters are introduced to a kid (Vidyarambam) with a priest writing the holy words on tongue using a gold ring Vidyarambham or induction to world of letters done on Vijayadashmi day with Gold ring used to write the first alphabets on a kid’s tongue. One would be amazed with the sheer amount of Gold around the brides in Kerala. No other brides in India wear this much gold as Kerala brides do. Such level of wearing is insanely high and may even look ridiculous, but essentially part of Malayalee culture (partly due to show off and ego etc) Its not just case of marriages around. This huge cultural affinity compels people to buy more and more gold. When you want more gold , illegal gold gets a good space. 2. Emotional appeal and Savings For majority in Kerala, gold is an emotional product. In English we use the word- My dear Honey as an expression of intense romance and affection. Its equivalent in Malayalam would be Ente Ponne - Ohh my dear gold. That highlights the emotional connect of Malayalees to the gold. This emotional appeal has pushed Gold as a savings or investment tool. If you look, gold is hardly a worthy investment asset in strict Economy terms. It is a dead asset, meant to be stored in vaults, not something that stimulates economy. But in emotional terms, its an extreme valuable asset. A daily wearing gold chain is a sort of ready-made insurance in everyday life. For a common man, its far better than an insurance. Gold is purchased not during enjoyment alone. Its heavily purchased in times of distress as well. For example during the Covid time, most of the business are down, but Jewellry business in Kerala is booming. People are rushing to jewellries to convert their liquid cash into Gold . Its on the same logic, Sree Padmanabhaswamy temple has tonnes of Gold reserves historically, now all worth nearly a Trillion. 3. Jewelleries In Kerala you have extraordinary number of jewelleries too to sell the gold. Kerala alone has nearly 19K plus jewelries operating in organized sector and double the number in unorganized. Out of top 10 Jewellery brands of India that control the majority of gold in organized market, four are from Kerala (Joy Alukkas, Malabar Gold, Kalyan and Bhima) making them as the largest. Malabar Gold is the second largest Jewellry brand in India controlling around 18% of total gold sales in India (this brand has more than 250 stores across the world). In Thrissur, often hailed as Gold Capital of India, you will find Gold Jewelleries akin to Kirana stores selling groceries in other parts of India Naturally, to conduct so much of business, legally imported gold will never be sufficient. Who supplies gold? India has too many licence rules and regulations that make it extremely difficult to define what a proper supply channel is. Often we mess up supply routes thro rules. India mainly procures direct Gold from Africa and to some extent from Dubai and Singapore Bullion markets. We have only 22 agencies (mostly banks and few nominated agencies) that have import licence and import under very strict regulations and higher tax rates. One classic example of restrictive practice is that India subsidizes import of Gold Dore. Dore is crude Gold mixed with all other impurities as mined directly from the mine. The non-Banking licence holders in India buy these dores from many unorganized companies and name-sake African companies which is of limited quantity amounting to about 60% of the requirements.Where can they go? just smuggle. There is a very huge informal unorganized refineries operating in India which are not legal entities, but does refining activities of illicit dore illegally brought to India (smuggling). This is not the only issue. Now, apart from Indian refined Gold, there is a huge market demand for foreign refined gold in the market. Indian market preferences matters a lot. The quality of many Gold refineries in India is not a standard one. This has resulted in comparatively poorer quality of Gold processed in India, while foreign refined gold are much of higher quality. Gold is a business where purity matters a lot. So there is an extraordinary demand for foreign processed gold which has ridiculous taxation. Gold refineries in India are mostly based in North India. North Indians prefer more reddish shade gold. But in Kerala,only bright Yellow shade is preferred. gold, So 22 carat gold must be mixed with an alloy of silver, zinc and copper and not pure copper alone. So legally refined Indian gold will less takers within Kerala, Processed refined gold from outside India like the Swiss/China gold is preferred. This is one key reason for lot of Smuggling happening in Kerala. India has an issue of Current Account Deficit and only gold and oil imports can increase CAD. To counter CAD, India frequently increases Gold Import rates to disincentive Gold Imports as many Indian Govts believe, that gold is never an essential commodity. However Gold has an extraordinary demand among locals. Smuggling is the only source to beat the higher taxation, The difference in gold rates and higher profit margin are the twin issues that trigger smuggling. The higher rates make it costly in India.other Whenever there is a difference of price between 2 markets, smuggling results. Gold smuggling happens via UAE, specific to Dubai. Because Dubai is one of world’s largest Metal trading market. Gold from African countries, Switzerland, China, Australia, Americas all end up in Dubai. And for Dubai, India is the biggest consumer of this yellow gold. And since there is NO TAXATION in Dubai, Gold is damn cheaper in Dubai.For a kilo of gold there is a huge difference of rupees seven lakhs-really huge. This price difference or the margin of profit that could be made if one smuggles gold from Dubai to India. A 10 Kg of Gold can easily fetch 70 Lakh Rs of profit, which is the average smuggling size per transaction. Even after paying all other expenses, a profit of 40 Lakh can easily be made for the gold jewelers. For Gold Jewellers their advantages are too many and they go ahead with Smuggling . Kerala having more unorganized refineries in Cionbatore,Trissur area can’t spend that much to secure import licences and to follow other strict legal formalities. Naturally these industries often depend on smuggled gold more than refined gold from North Indian refineries. Unlike black money or hard cash or property, illicit gold trail is hard to find out. Once a smuggled gold enters into India, it can easily be converted into legal gold. Its too difficult tough for Govt to audit the source of gold- thanks to the expertise of auditors, who are silently involved.The origin is very difficult to be traced. There is a huge category of Goldsmith community (Thattan) in Kerala, who too refine and make gold at their homes and sell it to jewellers. Now the interesting part-. Arabs and Keralites are extremely close to each other. We have more than 2000 years of trading relationship and extremely close. Kerala historically sells spices to rest of the world and imports Gold in return of that, which was traditionally facilitated by Arabs. Gold trade is a part of Kerala's cultural history. Being very familiar with the trick of trade Malayalees can easily connect with an Arab merchant or entity to procure gold and secretly land into India without much trouble. bring to India. And Dubai does not insist proper export channel rules. Gold smuggling is very much patronized,specially in Kerala.This is one reason, why majority of Malayalee Jewellers try to establish atleast one branch in UAE or other Gulf countries as they can undertake such illegal operations.They can silence media to politicians and finish off what they wish. Gold smuggling is handled by small expert groups. They identify NRI commoners in UAE who will be approached and given with good offers like free air-ticket, some petty goods and a sum of Rs 20k-30k. A great income to them with a good holiday package! They are totally ignorant of the smuggle deals.Even if they are caught and hand over the gold ,not much loss to the dealer. Thus investigations never becomes fruitful and proving in court of law is much difficult. These rackets work in tandem with customs and immigration officials in airport. The officials who are part of this, are paid as monthly salary for doing so, not per parcel value basis. The only way is to make Gold rates at par with Dubai rates. If we reduce the Gold Import tax rate, the whole idea of smuggling becomes expensive, making it unattractive for smugglers. As the import tariff rates increases, gold smuggling cases will also increase Gold Smuggling will definitely happen as long as India does not liberalize this sector. Mere airport oriented customs checks may not help in real way.. Jayasala 42 figures culled out from Kerala based journal.