In a major development, silver imports from the United Arab Emirates (UAE) to India surged nearly 60 times during the last financial year. This dramatic increase has raised eyebrows, given that the UAE does not produce silver.
The Global Trade Research Initiative (GTRI) has flagged this anomaly, suggesting potential breaches in the rules of origin established under the free trade agreement (FTA) between India and the UAE, which came into effect in May 2022.
According to reports, GTRI, headed by former trade officer Ajay Srivastava, reported that silver imports from the UAE skyrocketed by 5,853 per cent, jumping from USD 29.2 million in FY23 to USD 1.74 billion in FY24.
This spike is attributed to India imposing an 8 per cent duty on silver imports under the UAE trade deal, compared to a 15 per cent Most-Favoured-Nation (MFN) tariff on imports from other countries.
“This surge is unusual since the UAE does not produce silver. Instead, it imports large silver bars, melts them, and converts them into silver grains. Checking with global refiners reveals that the value addition in such a process is much less than 1 per cent, contrary to the 3 per cent required under the FTA. Despite this, traders claim and the UAE authorities certify a 3 per cent value addition to meet CEPA rules of origin,” Srivastava has been quoted.
GTRI emphasised the need for a robust monitoring mechanism to track import volumes and values, suggesting that quick policy responses are necessary to address unusual spikes. The think tank also recommended rigorous verification of the claimed value addition by Dubai-based refiners to ensure compliance with the rules of origin under the trade agreement.
“High import duties in India on gold, silver, and jewellery, which stand at 15 per cent, are at the root of the problem. The government should consider lowering tariffs to 5 per cent to curb large-scale smuggling and other misuse,” GTRI proposed.
Srivastava further highlighted the financial implications of the current tariff structure, noting that the 7 per cent tariff arbitrage has led to a revenue loss of Rs 1,010 crore for India in FY24. This loss is projected to increase as India has committed to eliminating tariffs on unlimited quantities of silver from the UAE within the next eight years.
In FY24, India imported USD 5.4 billion worth of silver globally. As tariffs drop to zero over the coming years, it is anticipated that most silver imports will be sourced from the UAE, resulting in a potential revenue loss of Rs 6,700 crore due to the tariff advantage. GTRI pointed out that this trade trend is primarily driven by the lower tariffs offered by India.
The GTRI report calls for immediate attention to ensure that the benefits of the FTA are not exploited through improper certification and that India’s revenue interests are safeguarded.
