How India Checkmate China On Silver Trade
The recent cacophony of noises and rantings by PM Modi's detractors and the opposition party politicians have spun a narrative of a major 'Silver Imports Scam' brewing in the bowels of India's offshore business hub GIFT City. But far from the convoluted and concocted narrative, the real story here is India's biggest trade policy victory against China. In fact, the contours of the game that India has played on Silver Imports has been successful in defeating China in its own game. If the policy is implemented across more imported products, it can very well shape the Modi government's future strategy and upset China's repressive global trade plan
Leftist cum socialist lawyer Prashant Bhushan, Congress Party's Jairam Ramesh and TMC's Saket Gokhale went into an overdrive on the social media platform 'X' to label 'Silver Imports' via Gujarat International Finance Tec-City (GIFT) as a major scam. "Silver Scam Carried Out Through GIFT City," said Gokhale. "You can take it from me, Gift city is a huge scam of Lakhs of Crores being facilitated by the Modi govt," said Bhushan. "Astronomical increase in silver imports is taking place through Gujarat's GIFT city. Who is giving the silver gifts and who is receiving them?," asked Jairam Ramesh. The spin in these statements is mind boggling since there has definitely been a surge in the import of silver via GIFT City. But is it a scandal or a grand success of policy making? A little probe by anybody, who understands the complex terrains of economic policy play, taxation and global trade, can reveal how India has managed to checkmate China on the flourishing silver trade.
China is known to use its economic hegemony to further its expansionist agenda and defeating it in this game of supremacy requires the gut of a skillful chess player. Surprisingly, China and its extended territory Hong Kong had emerged as the second and the third largest exporters of silver globally in 2022, which simply meant that India could not avoid sourcing silver from its arch rival. In 2022, the UK roughly exported silver worth $8.2 billion to the world, Hong Kong $3.5 billion and China $2.5 billion - China is also among the largest producers of Silver. As per data from the Observatory of Economic Complexity (OEC), which is the world's leading data visualization tool for international trade data, China and Hong Kong were emerging as the largest suppliers of silver to India after the UK. Data from London based research firm Metal Focus shows that China and Hong Kong accounted for over 33.66 percent of India's silver imports in 2022 -- this was alarming.
How India Managed To Decimate Silver Imports From China?
Prior to 2023, India levied a 10 percent customs duty on the import of silver. But in the 2023 Budget, the Finance Minister hiked this duty to 15 percent. As a result, India's silver imports fell. Compared to total silver imports of 9534 tons in 2022, India imported only 3625 tons of silver in 2023. Imports from China and Hong Kong combined, which stood at 3210 tons in 2022, declined to 1,156 tons in 2023. But what led to the complete decimation? The answer to this lies in India's CEPA (Comprehensive Economic Partnership Agreement) with the United Arab Emirates (UAE), which has proved to be a key catalyst that boosted import of silver from Dubai.
While the global trade rules are restrictive on differential duty tariffs between various countries, it allows Free Trade Agreements (FTA) between two countries where goods can be traded at reduced duty structure. Under the CEPA agreement between India and UAE, silver can be freely imported by authorized Indian entities by paying customs duty of just 8 percent against 15 percent duty applicable on import of the same metal from China. Since bullion trade is involved under the CEPA agreement, jewelry exports to Dubai from India too have become competitive since the UAE waives off 5 percent duty on import of jewelry from India. This makes India highly competitive in the jewelry trade against China. Eventually, India will keep bringing down its duty on silver imports from UAE each year until it falls to zero over the next 10 years. This leaves no scope for China to export its silver to India anymore - a checkmate.
A pessimist would argue that China will send its silver to Dubai from where it comes to India. But the argument also goes that Dubai can source the same from UK and other countries too. Only bilateral relations and trade experts know that still it is a win for India, since the businessmen here too can export their products to UAE at a concessional rate (UAE has waived off 5 percent duty on imports from India under CEPA) making it highly viable to compete with China in manufacturing goods like jewelry. This apart, the overly skewed India-China trade balance also does not grow further. The same model can be replicated on various other products too. The India-UAE CEPA pact came into effect from May 1, 2022 and also allows for concessional tariffs on gold where the duty is 1 percent lower than the usual imports from other countries.
Is There Really Any Scam In Silver Imports Via GIFT City?
In the context of the above, any noise by the opposition parties over India's growing silver imports from Dubai via GIFT City is just "Much Ado Over Nothing."
CEPA agreement allows imports of bullion from UAE to entities authorized by India to import bullion. Outside GIFT City, banks and certain institutions are authorized to import gold and silver. In GIFT City, certain registered private entities that match the set criteria and are registered with the India International Bullion Exchange (IIBX) have been allowed to import gold and silver. That said, there is nothing that stops domestic banks and other bullion importing institutions from registering with IIBX and indulging in imports. But even if domestic banks do not register with GIFT City exchange, the CIFA agreement does not bar them from importing gold and silver to ports in other cities in India like Mumbai or Delhi. In fact, bullion traders told Businessworld that silver has been imported under CEPA at Bangalore and Chennai. The only one advantage at GIFT City is that customs clearance is a lot faster than in other cities. Also, bulk purchasers of bullion in India can certainly pressure their banks to import bullion under CEPA agreement, even in other cities as quotas have been allotted to all the gold and silver importing entities. Banks that are unable to import bullion under CEPA are answerable to their clients. Where is the scam in this?
What Triggered The Scam Allegations?
A little known body called Global Trade Research Initiative (GTRI) published a report titled "FTA led Spike in Gold and Silver Imports from UAE," which triggered the noise and cries of a major scam brewing in GIFT City. What the report fails to address is that the total imports of silver via GIFT City are legit and not smuggling or criminal activity. Also, the report is half baked in terms that it does not talk about the China angle in silver imports and hence does not give a holistic picture of India's bullion trade - the report is more of a selective highlighting of data in a biased manner.
For instance the GTRI report says, "India facilitates gold and silver imports by allowing private firms to import from UAE through IIBX in Gift City. Previously, only authorized agencies could handle such imports. Trade in gold, silver, and diamonds has been prone to misuse due to their low volume but high value and high import duties in India. Low tariff imports of gold and silver only benefit the few importers who keep all profits arising through tariff arbitrage and never pass it to consumers."
The above observation made by GTRI exposes its bias, since it does not talk about how CEPA allows reciprocal reduction in duty on the goods and jewelry that India exports to UAE and how this bilateral trade agreement opens a field for India's manufacturers to compete with China. Most important, the GTRI report has no mention of the fact as to how the CEPA pact has helped India to cut down its dependence on China for silver.
China is India's arch rival that aims to gobble up India's land in the border areas, supports Pakistan, is known to deploy means to spread unrest in the country and is fiercely locked in one-upmanship against us. In such a scenario, why should India not grab any chance of cutting down its imports from China, wherever possible? Does GTRI consider this aspect? Also, why does the GTRI report not question the banks and other institutions that are authorized to import bullion, for not importing gold and silver via GIFT City or under CEPA?
Further, the GTRI says "7 percent tariff arbitrage resulted in a loss of revenue for India of Rs 1010 crore during financial year 2024. Revenue loss will increase as India has committed to make tariffs zero on unlimited quantities of silver from UAE within next 8 years."
Such a statement is without application of mind, since it implies that India was losing revenue due to some fraud related to the evasion of duty when silver is imported via GIFT City. How can a country said to be losing revenue, when it has consciously reduced the duty under a Free Trade Agreement, which also gives it reciprocal advantages? Does GTRI believe that sourcing of silver from China was good for India and hence it has not touched that angle?
Ajay Srivastava, the former Indian Trade Service officer of 1989 batch who took voluntary retirement from government services in 2022, is the face of GTRI. There is little information about Srivastava regarding his work in the years before the Narendra Modi led BJP government came to power. GTRI claims to be a research Group focused on Climate Change, Technology and Trade but does not give out any information about the experts in these respective fields, who are part of the group or how it conducts its research to arrive at conclusions like the above on silver imports?
BW Reporters
The writer is author of the book: The Market Mafia - Chronicle of India’s High-Tech Stock Market Scandal & The Cabal That Went Scot-Free.
Palak has been a journalist in Mumbai for nearly two decades now. He has worked for most premier pink papers including The Economic Times, Business Standard and The Financial Express and The Hindu Business Line. He was drawn to crime reporting at the age of 19 but a few years in the field told him that the fabric of crime had changed and the organised gangs, as Mumbai had witnessed during the eighties, no longer existed. It was business and markets that dominated the scenario. His passion to unravel the intricacies of the ‘white money’ economy led Palak to the world of finance and regulations.
