Smuggling drains supply of gold

HIMALAYAN NEWS SERVICE

KATHMANDU: The bullion market is going through a recap that it witnessed two years back as the market is hit by acute scarcity due to the illegal outflow of gold to neighbouring India.

“It is an unprecedented shortage that we are facing at present as supply in the market is about 10 kg per day while market demand is as high as 40 kg,” pointed out president of Nepal Gold and Silver Dealers’ Association Tej Ratna Shakya.

The difference in duty has made gold cheaper in Nepal following the Indian government’s move to increase the import duty on the precious metal from two percent to four per cent in March. Due to the open border, gold is being smuggled to India, draining the supply here in the local markets.

“We have requested the Finance Ministry and Nepal Rastra Bank to hike the duty in tandem with the hike in India to curb smuggling,” informed Shakya, adding that it has yet to be addressed by the concerned bodies.

Nepal suffered through a huge balance of payments (BoP) deficit two years back in fiscal year 2009-10 due to the import of large quantities of gold and silver. The government suspected that the imported precious metals were being smuggled to India because these metals were relatively cheaper here due to the difference in the customs.

To tackle the problem, the government not only determined the import quota for gold but also allowed only commercial banks to import the yellow metal. Now, commercial banks can import 20 kg of gold daily and sell it to traders.

“The central bank needs to keep track of customers buying from the banks as jewellers are not getting enough gold but at the same time gold is being sold giving rise to suspicion that something is amiss,” according to Shakya.

Following the Indian government’s move to increase customs duty for precious metals in early February, the Nepali government also revised the customs duty on gold and silver fearing that gold would again be smuggled to India due to the difference in customs duty.

It had increased import duty on gold to Rs 1,500 per gram and duty on silver has been fixed at Rs 4,600 per kg.