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Gold,gold Everywhere!

Discussion in 'Snippets of Life (Non-Fiction)' started by jayasala42, Jul 18, 2020.

  1. jayasala42

    jayasala42 IL Hall of Fame

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    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
    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.
    1. Higher Demand for the product
    2. Less/restricted supply channel for the product
    3. Price difference/higher margin for smuggled products
    Why is a high demand of Gold in Kerala?
    1. 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
    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
    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
    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
    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.

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