Both the World Gold Council as well as RBI governor, Raghuram Rajan, admitted a spurt in gold smuggling into India, after the government imposed curbs on gold imports. Unlike the 1970s and 1980s, this time, gold is being smuggled through air routes and India's porous borders with Nepal and Bangladesh

India’s gold market has been subject to much scrutiny in recent months, as the government has implemented a string of measures intended to deliver on its firm commitment to reduce imports of the yellow metal. However, the increase in import duty has given rise to the 1970s gold smuggling trend that was made glamorous by Bollywood in partnership with Haji Mastan, the ‘once upon a time’ Don of Mumbai. This time though, there appears to be several players who are using smuggling route to fulfil demand by the gold industry.

According to World Gold Council, gold entering the country unofficially through India’s porous borders helped to meet pent-up demand, together with an influx of recycled gold that was drawn out by higher prices and promotions offered by retailers during the third quarter to end-September. "Heading into the fourth quarter, and the major Hindu festive season, latent demand among Indian consumers remains very strong, as reflected in the persistence of local price premiums above the international gold price. It is likely that unofficial gold will continue to find its way into the country to satisfy demand. Reports that a good market for 10-tola (100grams) bars is re-emerging, due to the relative ease with which they can be concealed, reinforce this view," the WGC said in a report.

Reserve Bank of India (RBI) governor Raghuram Rajan has admitted that there is increase in gold smuggling. However, he said it has been on a very low base and the shrinking of current account deficit (CAD) had largely to do with the restrictions places on gold imports.

Demand for gold jewellery among Indian consumers remains strong, but reduced supply has prevented this demand from being fully realised during the third quarter. The year-to-date demand for gold till September end, in India increased 13% to 452.2 tonnes. However, this is just 18% below the total demand for 2012. During the September quarter gold demand in India fell 23% to 104.7 tonnes, says WGC.

The Indian government hiked the gold import tariff value to $442 per 10 grams from $436 per 10 grams over the past one month. The increase in import duty on gold to 10% by India has created a gap in gold prices with places such as Dubai and Thailand where the duty is just 1%. This has give rise to gold smuggling in the country. There are several cases of gold smuggling being reported from across places in the country.

According to Kiran Kumar Karlapu (@Scarysouthpaw), a government official, gold smugglers have started to move from low cost carriers like Air India and Jet or Indigo to luxury airlines like Emirates and Singapore Airlines. He said, “Smugglers operating from high price flights/business class seats have made us start to suspect every individual walking out of immigration. Fact that a smuggler could afford to purchase a business class ticket is fact of the terrific margins smuggling is giving smugglers.”

"While smuggling of the 1980s was heavily concentrated around Dubai- Bombay flights, this time around it is dispersed all over Middle East. Passengers have been caught on flights from Riyadh, Amman, Muscat, Bahrain and even Dhaka and Mauritius trying to smuggle in gold. Routes like Qatar, Bahrain and even Istanbul, which were historically non-sensitive, have seen passengers caught trying to smuggle gold in India. The only Middle East sector flights which have remained untainted by Gold smuggling are ironically Tehran-Bombay and Tel Aviv-Bombay routes, "he said in his tweets.

Earlier this month, officials of the Directorate of Revenue Intelligence (DRI) arrested two women, including an air hostess at Karipur International Airport for smuggling six kilograms of gold, valued at Rs1.84 crore.

However, according to a report in Times of India, smugglers are now flying consignments of gold to Bangladesh and Nepal and then using couriers to carry them across the border.

"In the past few months, over 50kg of gold worth more than Rs15 crore has been smuggled across the Indo-Bangladesh border alone. This year (up to October), close to 800kg of smuggled gold has been seized. This is more than double of last year's haul of 350kg," the report says.

According to WGC report, Thailand is being used as a route to channel gold into other markets, notably India and Vietnam.  The increasing prevalence of small gold bars within jewellery retailers across the Asian region supported demand in Thailand. At the same time, in India, the main focus of demand during the quarter was on small gold bars; indeed, a shortage of 100gms gold bars pushed premiums on these products significantly higher by the end of September, the report said.

How much gold can one bring from abroad?

As per the law, Indian citizen is allowed to carry 1kg of gold into the country, provided he/she declares and pays duty on it. Here are some interesting points (as shared by the officials on Twitter) about gold smuggling and subsequent action depending on the value of the yellow metal.

Gold caught...

1) Less than Rs20 lakh: No arrest

2) Between Rs20 lakh to Rs1 crore: Arrest with bail and prosecution

3) More than Rs1 crore: Arrest without bail and prosecution

The gold smugglers of Mumbai

During 1970s, India saw emergence of gold smuggling by gangsters like Mastan Haider Mirza alias Haji Mastan. He made millions through smuggling gold, silver and electronic goods and was once arrested and detained under the Conservation of Foreign Exchange and Prevention of Smuggling Activities (COFEPOSA) Act during the Emergency. However, after setting up a political outfit, he never indulged in smuggling again, says a report from Wikipedia.