Round-tripping still rampant in gold exports

Chennai: A large majority —78 per cent — of the gold imported into the country for export purposes is used for round-tripping. Increased round-tripping activity in 2018 saw a 12 per cent growth in the quantum of gold used for such fraudulent purposes.

The gold jewellery exporters used 176 tonnes of gold for round-tripping while only 50 tonnes catered to genuine exports in 2018, as per the estimates of precious metals agency GFMS. Growth was seen in the quantum of gold used for both genuine and bogus exports. In 2017, 41 tonnes got used for genuine exports and 157 tonnes for round-tripping.

Round-tripping continued to flourish to take advantage of the interest arbitrage or to inflate balance sheets despite government taking several measures to contain the malpractice. In October 2017, several star export houses under the nominated agency category had lost their license to import bullion for being allegedly involved in round-tripping.

Government also had banned exports of gold above 22 carat, as 24-carat coins and medallions were important tools of round-tripping. This stopped the exports of medallions. However, the gold got transformed into crude gold bangles and was used for round-tripping under the jewellery category.

Some genuine gold exporters had to face a tough time after the UAE levied a 5 per cent VAT on imports. However, jewellery exports to the UAE from India increased by 63 per cent year-on-year to $7.6 billion in 2018. While the VAT is applicable for imports into the region for domestic consumption, imports for re-export purposes are not subject to this duty.

Bogus exporters have been sending jewellery to destinations like Dubai and Sharjah and re-exporting them either directly to India or through hubs that melt jewellery back into bullion. As VAT is not applicable in such cases, this trade has flourished.

In FY19, the country exported gold jewellery worth Rs 84,004 crore, up 35 per cent from Rs 62,381 crore in FY18.  Of the total exports, 72 per cent, or Rs 60,748 crore, was exported through Special Economic Zones, which increased their exports by 51 per cent. In contrast, gold jewellery exports from Domestic Tariff Area grew by just 5 per cent, shows data from the Gems and Jewellery Export Promotion Council.