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Grains for gold: Indian export curbs drive boom in barter smuggling

Guards on either side of a border checkpoint in between India and Bangladesh search automobiles and frisk travelers in a hunt for illicit consignments of gold and drugs, in addition to food staples such as sugar, grain and even onions.

We caught smugglers in August who were transferring sugar hidden beneath a layer of sand in their vehicle, stated an officer of India's Border Security Force (BSF) in the northeastern city of Shillong, who looked for anonymity.

In spite of such efforts, unlawful barter trade of gold for food products has actually risen since mid-2022, as India's export curbs fuelled a vast variation with rates in Bangladesh, triggering combined government earnings losses of billions of dollars.

The smuggling distorts India's bullion trade with discounts from main costs, hides unaccounted wealth, and weakens New Delhi's efforts to suppress food inflation by limiting exports.

At the exact same time it undermines Bangladesh's import reduction measures aimed at enhancing regional farmers' production.

The practice of smuggling gold to purchase grain has continued even after India, the world's second-largest gold customer, slashed 9 percentage points from its import responsibility in July, taking it to the lowest in more than a years.

It is driven by considerably greater food rates in Bangladesh, which traditionally relies greatly on Indian supply.

However instead of merely making use of the price distinction between Indian and abroad gold, grey market operators utilize gold to barter for products such as sugar, wheat, and onions smuggled into Bangladesh.

The items are concealed, stated a BSF officer, citing the example of a smuggler in India's West Bengal state, apprehended in October with 4.7 kg (10.3 lb) of gold worth 35.1 million rupees ($ 414,000) stashed in his motorbike's air filter.

He had been used simply 10,000 rupees to ferry 18 gold biscuits into India to pay for food products already smuggled into Bangladesh, said the officer, who spoke on condition of privacy.

On India's border with Bangladesh, the BSF follows a. non-lethal policy that reduces deterrence, unlike the western. border with Pakistan, where officers carry guns to block. unlawful entry, the officer included.

REWARDING ARBITRAGE

Generally the most significant supplier of grains to Bangladesh,. India enforced curbs on exports of staples such as wheat, sugar,. rice, onions and pulses to check food inflation from 2022.

But gold costs have actually rallied more than 50% because the middle. of that year, encouraging broader activity by grey market. operators to exploit the arbitrage opportunity as food rates in. Bangladesh spiked as much as 150% over those in India.

The gold-for-grain trade grew as India gradually. tightened up curbs on food exports over the past 2 years, said a. grains dealer in the eastern city of Kolkata, who spoke on. condition of privacy.

More than 2 million metric lots of staples have actually been. smuggled into Bangladesh each year in exchange for gold, up from. less than 300,000 loads before India's curbs, authorities estimate.

The federal government limits farm exports to rapidly lower local. prices. But smuggling deteriorates that method, and farmers wind up. bearing the force of the constraints, said Balwant Holkar, a. trader in Lasalgaon in the western Indian state of Maharashtra.

Meanwhile, India's prohibited imports of about 156 metric heaps. of gold in 2015, worth about $9 billion, were up from 100 lots. in 2022, the World Gold Council (WGC) says.

Almost a 3rd originated from Bangladesh, say industry and. federal government sources, with the bulk utilized to settle payments for. smuggled grain, the BSF and India's Directorate of Income. Intelligence (DRI) authorities informed Reuters.

New Delhi lost an approximated $1.6 billion in overdue taxes. last year to gold smuggling, industry authorities estimate from. WGC information.

IMPORT DEPENDENCE

India banned exports of wheat in mid-2022 and curbed those. of white rice and sugar in 2023, while imposing high taxes on. deliveries of onions and parboiled rice.

But Bangladesh kept import taxes high, making it even more. attractive to smuggle grain throughout a permeable border stretching. more than 4,000 km (2,500 miles), stated a Dhaka-based grains. trader, who looked for anonymity as the matter is delicate.

In 2012, when India increased gold import duties, smugglers. made a margin of 54,000 rupees a kg, which increased to a. peak of 1.3 million rupees in mid-2024, industry quotes show.

Despite the July tax cut, margins remain profitable, at. 700,000 rupees per kg.

Even after representing operational expenses, grey market. operators still realise considerable earnings, stated James Jose,. secretary of the Association of Gold Refineries and Mints. This. is why smuggling continues, even after the task decrease.

Gold refining in India yields very thin margins, however grey. market operators offer large discounts because they avert taxes,. stated Harshad Ajmera of wholesaler JJ Gold House in Kolkata.

You can't take on them, Ajmera said. You simply lose. market share.

India's sugar export restriction drove a rise in international rates,. roughly doubling the rate of the sweetener in Dhaka over its. cost in eastern India, tempting grey market gamers.

To pay for items from India, Bangladeshi buyers utilize cartels. to provide the gold throughout the border, where Indian suppliers. exchange it for money in Kolkata to begin a brand-new trade cycle.

After India banned exports, Bangladesh's main imports of. raw sugar dropped 25% in the fiscal year ending in June, to. 1.386 million metric tons.

That gap was bridged with about 450,000 tons of smuggled. sugar, mainly spent for with gold, said some individuals in. official trade.

For the last few years, there's been no scarcity of. work, stated an Indian courier living near the border, adding. that he got paid right away on providing gold from Bangladesh. at a day's notice. ($ 1= 84.6825 Indian rupees)

(source: Reuters)