Hawala' premiums for smuggling gold have shot up to four per cent from 2.5 per cent a few months ago. These were just 1.25-1.5 per cent a couple of years ago, when gold was not smuggled to this extent into India.
The stringent curbs on gold imports, including 10.3 per cent import duty, has resulted in a huge flow of smuggled gold, being financed by buying dollars from the unofficial currency market, known as the hawala market.
Gold smuggling doubled in 2013 to nearly 200 tonnes from 112 tonnes in 2012, according to World Gold Council (WGC) estimates ,released on Tuesday. This has generated additional dollar demand to the tune of $13-15 billion from the unofficial market.
Without taking gold into account, the size of the hawala market is estimated at around $20 billion annually.
In the last two quarters of 2013, total gold smuggled into the country was estimated at 112 tonnes, more than the previous full year’s amount.
According to WGC data, India’s net gold import in 2013 was 825 tonnes, the value of which is estimated at $35-38 billion.
The hawala market has been traditionally used by those involved in smuggling or other unscrupulous activities. At the time of elections, unaccounted money from abroad also enters the country and is financed by over-invoicing of imports, under-invoicing of exports and non-resident Indian remittances.
Dubai is said to be the hub for the hawala market. Operators there have set up links with those in India to deal with local syndicates for transferring the funds.
Indians working abroad and non-resident Indians are the usual customers who use the hawala channel to transmit money into India, as the official banking channel charges fees. In hawala, they get more money, which, at the current four per cent premium, works out to an additional Rs 2.50 per dollar. After deducting hawala commission, it is still sizable. The hawala route is also used to pay in black money while buying real estate in India.
At the current gold price, 200 tonnes of smuggled gold has added to the dollar demand of $8-9 billion, which otherwise could have come through official channels into India.
According to WGC, gold entering the country unofficially, through India’s porous borders, helped meet pent-up demand, together with an influx of recycled gold that was drawn out by higher prices and promotions offered by retailers.