[MUMBAI] In the two years since India took steps to pare gold imports, people used all sorts of tricks as the smuggling business boomed - from simply tucking the metal under a turban to jamming it up their rectums.
That illegal trade, though, is fading now.
Premiums have evaporated for black-market bullion valued at about US$8 billion last year, industry data show. That's because the government has begun easing import curbs that in 2013 knocked India from the top spot among gold buyers.
In a country that accounts for a quarter of world demand, legal transactions are recovering, with annual purchases from overseas poised to jump 50 per cent.
Gold had become the most-smuggled item in India, where people consider it auspicious and a store of value, and rely entirely on foreign supply.
Government limits, including a record 10 per cent import tax, were intended to shore up a slumping rupee and reverse the country's widening trade deficit. With that gap now shrinking - thanks in large part to falling prices for oil imports - jewelers surveyed by Bloomberg expect Prime Minister Narendra Modi to cut the duty in his Feb 28 budget proposal.
"Illegal shipments have slowed down since the government eased the rules, as supplies from the official channels are now freely available," Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation, said from Kolkata.
About 200 metric tons was smuggled in 2014, after controls drove premiums paid by jewelers to as much as US$160 an ounce for gold that fetched US$1,184.37 an ounce on Dec 31, trade federation data show. Since then, the premium on supply from registered banks and importers has tumbled to about US$1, while in black market transactions, the metal trades at a discount of between US$6 and US$7, according to Mr Bamalwa. Gold for immediate delivery traded at US$1,220.47 in London on Thursday.
Since some curbs were lifted in May, imports have jumped. Through January, in the first 10 months of the fiscal year that ends March 31, shipments reached 940 tons, said two government officials with direct knowledge of the matter, asking not to be identified as the provisional data aren't public. Finance ministry spokesman D.S. Malik declined to comment.
Purchases plunged 35 per cent to 662 tons in the previous fiscal year, Commerce Ministry data show. Imports in the year ending March 31 should reach 1,000 tons, said Madhavi Mehta, an analyst at Kotak Commodity Services in Mumbai.
Customs officers already have begun to shift their focus to other illegal imports, from foreign currency, cigarettes and electronics to turtles and rare woods.
Smuggling of gold has come down because the curbs that had created an artificial scarcity in supplies are no longer there, "and we are hoping the change in duty expected in the budget will lead to a further drop," said Kiran Kumar Karlapu, assistant commissioner of customs at Chhatrapati Shivaji International Airport in Mumbai.
Inspectors at Mumbai airport found gold bars in computers, shoes, turbans, wigs, bars of soap and mobile phones, though the most common method was up the rectum, sometimes with candy-bar-sized metal, Mr Karlapu said. Gold dust was even found mixed with coffee powder, he said.
Smugglers are paying travelers less to carry the metal illegally. A man caught with 9kg of gold coins in his pant pockets while traveling from Bangkok in early January told authorities that he was paid 25,000 rupees (US$403) per kilogram, down from the 30,000 rupees he got when he did the same thing last year, Mr Karlapu said.
There's a long history of gold smuggling in India.
From 1968 to 1995, illegal shipments ranged from 10 tons to 217 tons a year, according to Y.V. Reddy, a former Reserve Bank of India governor.
Smugglers were common villains in Bollywood films of the 1970s, with some portrayed as gang leaders. Matinee idol Amitabh Bachchan played one such role in a 1975 hit, Deewaar, based on a real-life Mumbai gangster.
Gold is a common gift at weddings and festivals, and rural Indians who account for almost 60 per cent of demand use it as a means of savings because most don't have bank accounts.
India increased the import tax and limited direct shipments through select banks and trading companies as the rupee headed to a record low and a surge in bullion purchases widened the current-account deficit to an all-time high of US$88 billion in the year through March 2013.
With the help of a 50 per cent plunge in global oil prices, the gap may narrow to US$24.2 billion in 2014-2015, before swinging to a surplus of US$1.5 billion in 2015-2016, the first in a decade, Morgan Stanley said in a Jan 21 note. India imports almost 70 per cent of the oil it consumes, according to government data.
Confronted with a narrowing deficit and a surge in smuggling, the government abolished a rule on Nov 28 that required importers to sell 20 per cent of their purchases to jewelers for re-export.
The 10 per cent tax is the last major control on imports, and Mr Modi will probably cut it this month, according to seven of the 10 jewelers and analysts surveyed by Bloomberg. Finance Ministry's Mr Malik declined to comment on possible tax changes in the budget.
The prolonged slump in oil prices may discourage the government from cutting the duty on gold, Harish Galipelli, head of commodities and currencies at Inditrade Derivatives & Commodities Ltd., said from Hyderabad on Jan 29.
"This is also a source of revenue," he said. "They may want to tackle the deficit issue from a long-term perspective and ensure that investment flows into non-gold assets."
Smugglers won't be deterred unless the import tax is cut to 2 per cent or lower, said Mr Karlapu, the Mumbai customs officer. Keeping the rate at 10 per cent means "smuggling will continue," the trade federation's Mr Bamalwa said.
Seizures of illegal gold at Mumbai airport, which had a record 860 cases in 2014, declined to 40kg in January from a peak of 130kg in August, Mr Karlapu said.
The fading allure of gold probably won't make life easier for customs officers. "The gangs that operate in gold smuggling and other goods are the same," Mr Karlapu said. "They'll always look for the next profitable items like iPhones, rhodium and high-value drugs."