Truth with Substance
Economy
By Shivaji Sarkar
CAD Remains High
Window-dressing the
reality; gold smuggling doubles; Oil needs
inflated?
By Shivaji Sarkar
It is time the country needs to be wary of official import figures. The
latest September figures are quite a puzzle. It says gold imports have
drastically reduced and oil imports fall by 6 per cent. This is an
attempt at window-dressing to cover up the reality of high Current
Account Deficit (CAD).
Gold imports through official channels have fallen as the import duty
has been increased to almost 10 per cent of the value. However, gold
arrivals have not fallen. It is pouring in from all sides – ports,
airports, Pakistan, Sri Lanka, Bangladesh and Nepal. The glee about
falling current account deficit needs to be taken with a grain of salt.
The hawala trade has also got a boost. These are indicators that the
government is unable to manage.
It seems the Commerce Ministry is not stating the truth. Oil imports as
per petroleum ministry figures are coming down every month since April
2013. Some ministry statements say that oil companies are importing only
75 per cent of the “need”. It should be good news though it is not.
Normally such cut in imports and consequent supply should have created
long queues at petrol pumps and raised a hue and cry all over. None of
the bulk consumers be it railways, airlines, state transport
corporations or goods transporters have reduced consumption.
So how is the fall in imports keeping the wheels on the move? It raises
moot question. If the country’s needs are being met at that reduced
level, the earlier imports were definitely at an inflated level. This is
not the first quarter in which oil import volumes have fallen in recent
years. It’s remarkable that apart from these blips, oil import volumes
kept on rising in spite of a drastically slowing economy. But oil import
volumes stabilized in the January-March quarter and then fell during the
July-September quarter. So even if it has fallen it remains at a high of
41 billion barrels up from 25.3 billion barrels in April 2010. The
petroleum companies possibly are still concealing many facts.
If the latest trend, as they claim is factual, then the import at this
kind of high level is possibly unwarranted. It requires a proper audit
of import figures and the actual needs in the country. The petroleum
companies have not been transparent on the issue of pricing and the so
called “under recoveries”. The finance ministry had raised many
questions on these issues for the last over three years. It remains
unresolved. The profits of the companies in all these years have been
soaring. They are also bleeding the government by forcing it pledge oil
bonds.
Neither oil nor gold should be a comfort. Gold since 1991 was being
imported on zero duty. It had virtually put an end to smuggling. It
reduced cost on policing. As per commerce ministry in May imports were
at 62 tonnes, which halved in June and fell further in the recent
months. This is also the time when arrivals through “illegal” routes
increased. As during the past over a year, customs duties increased and
other RBI curbs were imposed gold smuggling has doubled in the
April-August period. Jewellery industry players and veteran bullion
analysts say since April this year, nearly 60 tonnes of gold has entered
the Indian market through smuggling compared to 30-32 tonnes in the
corresponding period of the previous year.
The margin for bringing gold into India through unofficial channels has
increased. The RBI linked linked imports to exports. This only increased
confusion bringing official imports to virtually on halt giving enough
room to smugglers to have a field day. In July, a huge quantity was
smuggled in from Pakistan as it allows free imports. Later avenues for
smuggling have opened up from Bangladesh. Fishermen from Sri Lanka bring
it in their boats to dump at other boats or shores. Nepal has also
emerged as another route.
Gold arrives in Gujarat, Rajasthan, Punjab, West Bengal, Tripura, Assam
and other North-East states. So it does on western coast in Maharashtra,
Karnataka, Kerala and in the east in Tamilnadu. In the April-June
quarter of this financial year, seizure of smuggled gold hit Rs 59.82
crore - an increase of 365 per cent over the same period a year ago.
Seizures in 2012-13 had doubled from the previous year to Rs 99.34
crore.
This year, authorities expect this to rise to around Rs 250 crore.
Recently a counselor of a foreign embassy was caught at Delhi airport
with 109 gold stapler pins on his packet. Weighing 6 grams each, the
pins were 754 grams of gold, worth Rs 20 lakh. In another incident, a
counselor-level diplomat travelling from Dubai was nabbed at the Delhi
airport carrying 37 kg of jewellery worth Rs 10 crore. A few weeks ago,
a fishing boat from Sri Lanka landed at Kodikkarai in Tamil Nadu with
gold bars weighing over 18 kg.
The gold was to be sold in nearby Chennai. Two separate vehicles
carrying the gold to Chennai were intercepted at Shirkazhi in the
Nagapattinam district and Thiruthuraipoondi in the Tiruvarur district.
The seized gold biscuits had the seal of a Swiss bank. Five people,
including a local politician, were arrested.
They were offered a commission of Rs 3 lakh to carry the gold bars to
Chennai. A large portion of the gold is now smuggled into India by human
carriers in flights from West Asia. Most of the carriers are either poor
people who agree to smuggle the gold in small quantities (2 to 4 kg) for
a commission or Indian labourers who are happy just to get their trip
back home sponsored. Penalty can be four to five times of the seized
value but normally only 20-30 per cent is levied. Smugglers get the
seized gold picked up by paying the penalty. If not claimed by anybody,
the gold is auctioned off. So to say that this saves foreign exchange is
a misnomer. The commerce ministry’s current account deficit (CAD)
figures window dress a lot but is not a savings on any count. India
needs to look at the official figures with circumspection. With
elections around such attempts are likely to be repeated.