How FM Nirmala Sitharaman Plugged India's Biggest Menace Through Her Budget

When it comes to tax collections, governments are often seen as the hungry demonic hounds that want to eat away your pie - larger and larger at each given opportunity. Thus when Finance Minister Nirmala Sitharaman this time halved the import duty in her budget on Gold to just 6 per cent from 15 per cent, it has largely baffled India's masses since they are the world's largest retail consumers of the yellow metal, who are now witnessing a rare occasion of a hungry hound letting go of a large pie of taxes. Wily as India's opposition political parties are, Congress leader Jairam Ramesh attempted to capture people's imagination by "questioning the economic logic behind such a duty cut" while others like West Bengal's Trinamool Congress MPs are busy spinning conspiracy theories around the FM's move. A more innocuous advice to the FM came from equity fund manager Nilesh Shah (also the member of PM Modi's economic advisory council) to keep a check on the rise in imports of gold (a non-productive asset as per him), following the duty cuts. But Shah's is a different story, since he has been a career equity fund manager and a long time critic of gold investments that have little or no play in India's mutual fund industry.

What then is the story behind the FM halving the duty on gold imports?
Seasoned bureaucrats and those linked to India's national security administration say, higher taxes on gold had turned it into a metal of choice for parallel economy of political funding and terrorist financing with Kerala, West Bengal and bordering areas of the country becoming a hotbed for gold smugglers, thereby harming India's national security. All this since Gold has always been a strong substitute for hard cash in India.

A drug trader is a criminal but those who smuggle gold consider themselves a different breed, maybe businessmen doing a little-sleight of-hand. A high sense of morality that smuggling of drugs implies trading in human misery and death but gold smuggling was only a matter of evading the law and the tax collector, had led to a flourishing business model involving smugglers and jewellery traders, unique to India only due to a higher import duty.

Roughly, between 200 to 400 tons of Gold worth more than $15 billion is smuggled into India each year. The FM just kicked that business model in the butt with the cut in the duty. How?

The Gold Runners
How Gold smuggling gave underworld don Dawood Ibrahim a launch pad to graduate to becoming a designated global terrorist is an old story of Mumbai. But little do people know that the 'D' Company, which operates among the world's largest smuggling networks, is still milking the lucrative Gold Smuggling trade.

A report titled 'Smuggling in India 2022-23' by the Directorate of Revenue Intelligence (DRI) shows how Gold had a lion's share among the contrabands including Heroin, Cocaine, Meth and Ganja seized by India during the year. Between 2020 and 2023, India has seized more than 12 tons of smuggled gold and still it was just the tip of the iceberg since majority of the cases are never detected.

In April 2023, nearly 4,522.75 kilograms of Gold (worth approximately Rs 2400 crores) was seized from just one Dongri-based syndicate. And the fact that Dongri is the stronghold of Pakistan based D Company is common knowledge on the streets of Mumbai. The Dongri chase led to the arrest of smuggler Shoeb Zarodarwala and his son Abdul, the tour and travel businessmen connected to Dubai based scrap metal dealer Nisar, who supplied 'duty free' gold to be sold in India's black market and channelled the money via Hawala the to the 'D' gang in Pakistan, a country on the edge since India's demonetisation of higher value notes that broke the backbone of the cross border fake currency racket.

Then, there was Yunus Shaikh from Dongri who employed 18 Sudanese women, all of whom were arrested while trying to evade scanners at Mumbai's Chhatrapati Shivaji International Airport with gold worth Rs 10 crore each hidden as dust and paste on skin and capsules in body cavities. Conflict zone Sudan is a Muslim dominated country in Africa which is the world’s tenth largest producer of gold. India has become a hub for Sudanese syndicates running a booming trans-Saharan smuggling racket. Sudanese nationals enter India through the porous Indo-Nepal border or fly in from the UAE. In 2023, more than a dozen Sudanese gold smugglers were caught in Patna, Pune, Mumbai, Kolkata, Delhi and Kochi, most linked to the Muslim Mafia or the D Gang.

Gold As Halal For Terrorists
Officials with India's intelligence agencies, who had recovered indoctrination documents, say those financing terrorism in India have plucked a strong or maybe even convoluted reasoning to brainwash people of Muslim community into gold smuggling. Members of banned terror organisations like the Indian Mujahedeen are preaching that gold trading is halal (legit) in Islam. Unlike currencies, gold is not susceptible to the whims of government and central banks as currencies are. Fiscal or monetary policies do not affect gold prices. Gold will always be worth something, unlike currency that might be nearly worthless due to uncontrolled inflation. Over the years, there has been an increasing trend in gold investment, particularly among the new investors following Sharia laws. The indoctrination further states that while gold trading is permissible in Islam, every Muslim should know that gold is one of the Ribawi items. Meaning, Muslims cannot trade it for future profit or speculation but are allowed to use gold as a form of cash and own it as jewellery.

Consignment approach: The seller acts as an agent to a supplier to sell the gold. The consignee (the seller) can sell the gold directly to the buyer or his agent as a representative. Furthermore, the consignee has the option of purchasing the gold from the consignor before selling it to the client, with payment made by debit or credit to the consignor’s account. All of these details to brainwash Muslim people for gold smuggling are used by the Mafia, according to intelligence sources.

In March 2024, the Special Cell of Delhi Police detected a gold smuggling ring that funds terror activities by Indian Mujahedeen. The police arrested two individuals from the Customs Department at the Indira Gandhi International airport on January 16. The accused were relatives of banned terror outfit Indian Mujahedeen founders Riyaz Bhatkal, Iqbal Bhatkal, and Yassen Bhatkal.

The Kerala Story - State As Paradise Of Gold Smugglers
Have you ever wondered how Kerala business houses backed gold jewellery retail stores are mushrooming in India? How the huge inventory in these Kerala linked retail stores is managed and what is so successful about their franchise arrangements, their source of funding? Why are Gold smuggling cases highest in Kerala compared to other states of India?

As per the Finance Ministry data, nearly 2.3 tons of smuggled gold was seized from Kerala between 2020-2023. The state had 3,173 cases of gold smuggling in these years and yet the seizures were just a drop in the ocean, the sources say. Kerala's Thiruvananthapuram, Kochi and Kozhikode airports rank at the top in Gold Smuggling. Fact that most households in Kerala have working family members in the middle-east, makes the state a paradise for gold smugglers who use them for moving gold when they or their relatives fly in and out of the country making it practically impossible for the government to crack down.

Investigations have revealed that a well known unlisted jewellery brand in Kerala with branches across the country claims to have 4000 investors, whose names are unknown to the authorities. In India, unlisted companies cannot have 4000 investors, which otherwise would require special permission from market regulator SEBI. Money laundering angle involving this brand is highly suspected.

Political Backing
In Kerala, Gold smugglers are likely to enjoy the backing of mighty politicians and state government officials threatening the country's national security. This has come out clearly in the most notorious and sensational gold smuggling case involving the Diplomatic Channels in Kerala. In 2020 customs seized 30.245 grams of gold valued at Rs 14.82 crores addressed to the diplomat of UAE Thiruvananthapuram Consulate (Kerala). The follow-up investigation revealed that earlier 136.828 kgs of gold worth Rs 46.49 crores were also smuggled through diplomatic channels multiple times. The masterminds of this scandal too are said to be ensconced in Dubai with links to D Company and other terror outfits.

Swapna Suresh, among the prime accused in this Kerala Gold Smuggling Case involving Diplomatic Channels, confessed in her letter to PM Modi about the role of key state government functionaries in Kerala. The National Investigative Agency (NIA) that is responsible for probing India's terror related cases gathered that the gold smuggled in Kerala was being used for terror financing in the country. As per NIA 'mastermind' Faisal Fareed smuggled 230 kg of gold from Dubai via diplomatic route.

The Kerala gold seizure snowballed into a major political controversy that shook the foundation of the ruling Left government in the state especially after top bureaucrat M Sivasankar got involved. Sivasankar was arrested by the Customs after Swapna Suresh submitted that he was abetting her in the gold smuggling activities and was “in the know of things”.

"I would like to bring forth to your kind notice that the person who actually committed this heinous smuggling is in fact an IAS Officer, Shivashankar (principal secretary of the Chief Minister of Kerala). Due to the higher rank of the officials, few employees like me had to withstand the worst of this scam," she had confessed in her letter. She added that she was merely obeying the orders of her line managers and was doing this through the UAE consulate diplomatic channel. Ms Suresh said that she had no say in the matter.

"When it was brought to light by the customs, they left us stranded behind the bar for 15 months for not disclosing anything. Even Mr Shivashankar was in jail for three months. But the Government of Kerala favoured him bail and also granted him a reputed job, allowing him to live a dignified life," Ms Swapna claimed.

She further claimed that the Principal Secretary and the Kerala chief minister's family members were also directly involved in "this big scam".

"We can't compare such scams with any other scams executed in India like Bofors, Vedanta, Lavalin (Kerala Hydroelectric) or 2G Spectrum. The gravity of the scam is more powerful than theirs. It has jointly executed with other countries' consulates against India," she wrote.

China Connect: Myanmar, West Bengal, Sikkim Ring
After the COVID-19 pandemic affected the air route of gold smuggling, it forced the mafia to explore new routes. As per the 2023 report of DRI, land routes now account for 52 per cent of the total smuggling cases, distantly followed by air routes at 29 per cent.

In 2023, gold was found concealed inside triangle plumbing valves imported from China. Officials recovered over 61.4 kilograms of gold worth Rs 32.4 crore in 1,856 valves. In May 2022, the DRI intercepted an import consignment of electric hammers in Mumbai — which arrived from Hong Kong and an examination had revealed 16.054 kilograms of gold concealed in these hammers.

In a separate case, the DRI intercepted another consignment, which, at the air cargo, was declared to contain drum-type drain-cleaning machines. Smugglers had hidden gold in the form of discs in the rotors of these machines. In 2023, it was revealed that in eastern Ladakh along the China border, 108 kilograms of gold was smuggled into India via a land route that the authorities did not know. The route was used multiple times. Then, there have been instances of the DRI having seized gold worth crores smuggled from China through the Indo-China Border in Sikkim.

During the pandemic, the north-eastern borders of India were used more than ever before, mainly to smuggle gold from Myanmar and Bangladesh, and the land routes took precedence over air routes, the DRI says.

For gold from China and Hong Kong it is more easy to enter Myanmar, from where it comes to India via land routes. Then, there are armed ethnic groups that also illegally run gold mines in states such as Kachin, Kayin, Mon and Shan in Myanmar who are driving the cross-border gold smuggling racket with India. Smugglers have been exploiting the ‘free movement regime’ on the India-Myanmar border that came into effect in 2018. Apparently, gold from Myanmar enters India mainly through border towns such as Zokhawthar in Mizoram and Moreh in Manipur. It is then taken by carriers on customised cars, vans, buses and trucks to Aizawl, Silchar, Guwahati, Delhi and Chandigarh. Kolkata (West Bengal too is the same like Kerala story where smugglers enjoy backing by politicians and bureaucrats). It was thus that the government recently also scrapped the free movement regime on the Indo-Myanmar border.

In an operation named Golden Dawn, the DRI bust a gold smuggling network through the Nepal border involving foreign nationals and seized 101.7 kg foreign origin gold. Prior to this in 2022, the DRI had apprehended a cabin crew member of Air India Express coming from Muscat at the Kannur airport for allegedly smuggling gold where Surabhi Khatun from Kolkata had concealed 960 grams of gold in her rectum. In June, Chennai airport customs busted a racket run by a YouTuber Sabir Ali, who rented a shop inside the airport terminal and used his staff for illegally transferring gold. Sri Lankan gold smugglers were behind Sabir Ali who had managed to successfully smuggle 267 kg of gold worth Rs 167 crore through the owner and employees of the shop in two months.

Smuggling was on a high in India also as punishment is not a deterrent. If the value of the smuggled gold is less than Rs 2 crore, the smuggler can get bail on the spot. Apart from hawala transactions, organised gangs use the proceeds from gold smuggling for fund remittance to families in India. Money is also transferred via digital wallets and cryptocurrency, making the supply chain more complex, layered and opaque and harder to trace.

The Winning Shot
With one stroke of her pen - FM Nirmala Sitharaman has rendered Gold Smuggling in India not profitable.

It is common knowledge that gold smuggling is linked to import duties, government policies, and regulations — as import duties rise and gold prices increase, the smuggling market becomes more lucrative. Hence, the first step in curbing the menace of Gold Smuggling in India was to make it less lucrative by bringing down the tax and keeping it on par with countries like UAE that impose 5 per cent Value Added Tax on Gold.

Otherwise, although Indian agencies manage to intercept some of the smuggled gold, several cases go unnoticed as most smugglers are caught by “chance” when the department has a prior tip-off or during random checks. An intricate network of carriers and receivers and well-oiled machinery involving airline, airport, port officials and land routes keep the racket running. And the myriad ways that Gold is smuggled into India range from outrageously innovative to downright bizarre ways helping Mafia, gangs, terrorists to flourish and even give boost to the parallel economy of black-money laced political funding.