What Went Wrong with Gold Import Figures? Why the Revision Before the Budget is Crucial

What Went Wrong with Gold Import Figures: All this unprecedented year-on-year growth in gold imports by 331% at the end of November 2024, which very nearly made the domestic currency go all-time low against the United States dollar, and just as though it had recently raised a number of red flags in the gold industry, forced the government to set in motion a comprehensive process of matching and comparing trade data from various sources, including direct tax collection data, to ascertain things right.

The preliminary effort for imports between April and November resulted in a steep revising of the figures for gold imports, and it also happened about the steepest revision of gold import numbers in recent memory. For that month alone, gold imports were revised down by $5 billion, and cumulatively between April and November, the revision was to $12 billion down to $37 billion.

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It is said that this revision was necessitated due to an issue arising in the process of data migration that started around July last year. A subsequent investigation found the problem was due to a transition in the data system of the Special Economic Zone (SEZ) to the Indian Customs Electronic Gateway (ICEGATE), which resulted in "double counting" in gold imports.

These revision come close to the Union Budget presentation and gain more weight since gold imports increased to new heights after the duty on gold was cut from 15% to 6% in the last Budget. This resulted in demands to raise the rates afresh in this Budget to help reduce the ever-widening trade deficit that is weakening the rupee.

Industry apprehension over bringing in advanced gold duty amid soaring imports

The upcoming Budget is set to possibly raise gold duty rates under an erroneous presentation, a move that would injure heavily labor-intensive gems and jewelry industries where gold is the main input. According to historical data, the month of November is usually good for exports since it witnesses great demand from festivities. But in this year, exports plunged by 13% in November.

This comes with a situation already tough on the demand and supply side. Europe and China are weak markets, cutting down the exports to these profit-marketing zones, while few rough diamonds are available due to sanctions on Russia over the Ukraine war.

The correction in the data thus minimizes the chances of increasing gold import duty in the next Budget as the revised figures showed that gold imports from January to November, 2024 are below the average annual level of 800 tonnes.

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The average amount of smuggled gold per year is 200 tonnes

Indeed, high gold duties have not been effective in revenue generation since they just push up the smuggling of gold into the country. Last month, even under a 6% duty on gold, Delhi customs foiled a passenger trying to smuggle gold in the rectum.

As per a report from Indian Institute of Management Ahmedabad (IIMA) on gold smuggling, as much as one-fourth of the total volume of gold entering India comes by way of illegal trade, meaning that as much as two hundred tonnes of gold flow into the country. According to the report, India imports around 800-900 tonnes of gold every year, while the total consumption averages about a thousand tonnes yearly.

'Duplicate gold data counts'

The explanation put forward by the ministry regarding the counting error is: The Commerce Ministry's data is reconciled with Finance Ministry data. On migration of data, it was revealed that there had been error on transition of data transmission mechanism from Special Economic Zone (SEZ) to Indian Customs Electronic Gateway (ICEGATE). The new transition came into operation from 1 July.

So, it was clarified that the precious metals that were to be revised counted imports into the SEZ and had subsequently been cleared into the Domestic Tariff Area (DTA) as separate transactions after the migration, due to a "technical glitch."

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