India gold tax hits bridal budgets; smuggling up

Save Story
Leer en Español

Estimated read time: 5-6 minutes

This archived news story is available only for your personal, non-commercial use. Information in the story may be outdated or superseded by additional information. Reading or replaying the story in its archived form does not constitute a republication of the story.

MUMBAI, India (AP) - With India's wedding season in full swing, the glass sales counters in Mumbai's famed Zhaveri gold bazaars are crowded with customers eyeing elaborate headpieces, nose rings and necklaces. No one does jewelry quite like an Indian bride, who by tradition wears all the gold she can stand up in and her family can afford.

These days, though, even the most ambitious bridal budgets don't bring the bling like they used to, thanks to hikes in import duties and a rise in local gold prices that have shoppers like Rajanikant Mehta grumbling.

Mehta, who owns a factory outside the capital, had planned to spend about 100,000 rupees ($1,800) on a necklace for the woman marrying his son late this month, but he's unhappy about what he's getting for his money. Gold prices in India, which imports nearly all its gold, have risen 50 percent over the past three years to about 87,000 rupees, or about $1,400, an ounce.

Thanks to the new tax and weaker rupee, that's about a 20 percent premium over the world market price, hovering just under $1,200 an ounce.

"The price of gold should be lower," Mehta complained. "This is a globalized world. If the prices are similar to the prices elsewhere, then the purchase of gold will increase."

More gold-buying, though, is exactly what the Indian government is trying to stop by raising import duties three times this year to 10 percent on gold bullion _ up from 2 percent in January _ and 15 percent on gold jewelry.

Gold is India's second-biggest import behind oil, and purchases have soared in recent years as rising incomes from a decade of economic growth sent Indian consumers on a buying streak.

The problem is that the greater buying of the precious metal has dealt a blow to India's economy by increasing the flow of money out of country compared to inflows. As a result, the current account deficit rose to a historic high of 4.8 percent of India's gross domestic product in the fiscal year that ended in March.

That in turn has helped weaken the rupee by about 10 percent this year, making many products more expensive by raising the cost of oil, priced in dollars, and other raw materials.

But in trying to discourage gold-buying, India is taking on a passion that dates back thousands of years and is deeply entwined in Indian culture. In some Hindu legends, Brahma, the god who created the universe, was born from a gold egg. The goddess Lakshmi is portrayed with a golden complexion and gold coins flowing from her hands. It's considered good luck to give gold, especially to a bride.

Still, the tax measures appear to have worked, with gold imports down 32 percent in the July-September quarter and India on track to lose its status as the world's No. 1 consumer of gold to China this year. The drop has eased pressure on the current account deficit, now on track to reach a more comfortable annual average of 3 percent of GDP. The government hasn't said what it plans to do with the extra revenue, but the country faces a big fiscal deficit, so every bit helps.

The official numbers tell only part of the story, though, since the higher import duties have also given birth to increasingly creative smuggling schemes.

According to Indian media reports, customs authorities have busted people with gold bars hidden in mobile phone battery compartments, a man with gold necklaces wrapped around his legs and another man who had fashioned 109 solid-gold staples, painted them gray and stapled them to the box of a television he was legally importing. Local media reported the staples weighed a total of 755 grams (26.6 ounces) and were valued at 1.9 million rupees (about $30,500).

The seizures are probably only a fraction of the amount of smuggled gold getting through, according to the U.K.-based World Gold Council.

"Going by the number of seizures that have been made at airports and elsewhere, there is enough evidence to say that smuggling probably has doubled this year," said Somasundaram, the India director for the World Gold Council.

It's impossible to know the exact amount being successfully smuggled in, said Somasundaram, who uses just one name. But the council has noted a 125 percent rise in third-quarter gold sales in Thailand over the same period the previous year, to more than 35 tons. That suggests Indian smugglers may be buying much of their gold there.

Despite the steps to limit imports, India's demand for gold remains robust. It's plainly evident during wedding season, which runs from November through January. The custom of adorning brides with gold is both spiritual _ gold is a powerful symbol of purity _ and practical. The wife's wedding adornments belong to her as insurance against a bad marriage, even though many men confiscate it.

In the southern state of Kerala, the escalation of bridal jewelry extravagance is so dramatic that the local women's commission has even proposed a law limiting how much a bride can wear _ a measure bound to meet popular opposition.

"Everyone likes gold. Marriage happens just once in your life," Abhirami Damodaran said as she shopped for her wedding jewelry.

The daughter of a real estate businessman in Kerala, she plans to flaunt a whopping 3.2 kilograms (about 7 pounds) of gold worth about 9.6 million rupees, or $150,000, on her big day.

"When we wear gold, it's not only the bride who is happy, but her parents as well," she said. "They are giving gold as part of a future investment."

(Copyright 2013 The Associated Press. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.)

Most recent World stories

Related topics



    Get informative articles and interesting stories delivered to your inbox weekly. Subscribe to the Trending 5.
    By subscribing, you acknowledge and agree to's Terms of Use and Privacy Policy.

    KSL Weather Forecast