After years of profit-making, smugglers sneaking in gold from Nepal into India had been rendered jobless by the latter's liberalisation of gold imports in 1997. But now things are looking bright again for the smugglers, thanks to the Bharatiyajanata Party (BJP) government's increasing of import duties on gold by 60 percent. The current 6 to 7 percent price difference between gold prices in Nepal and India now makes gold-running worthwhile all over again.
At least one smuggler in Nepal was ecstatic about the new duty regime. "A Maruti Gypsy can take up to 40 kg. I have 'lines' through Mahendranagar, Nepalganj, Bhairahawa, and even Birgunj. From there we can choose any destination, Delhi, Patna, Calcutta. We are back in business. One trip a month is all one needs." By lines', he means the officials along his chosen route who help him get the consignment to its final destination. Smugglers make an estimated INR 500,000-600,000 (c. USD 13,000) per trip.
India is a bottomless pit for gold, claims the World Gold Council (WGC). It is the largest consumer in the world and irrespective of boom or depression, demand never shows signs of receding. In 1998, India imported close to USD 8 billion worth of gold—a figure that is more than 2.5 percent of its GDP and higher than all its oil imports.
There were two reasons why gold demand was so high last year. First, the shortage of other financial instruments available to channel savings. Equities had been beaten to death, real estate was still on a downward spiral, and interest rates offered on debt instruments were barely above the retail price inflation. Gold, at least, is like buying dollars, and even if the underlying price varies a bit, dollar appreciation of 10-15 percent per year makes up for it. "For those who thought UT1 (Unit Trust of India), the largest Mutual Fund that nearly went bust, was safe, last year was a terrible shock. Now they will touch nothing but real safety," said an investment analyst with a Bombay brokerage. "Indian households are investment savvy, now that Harshad Mehta has taught them their lesson. Gold has everything. Returns, shine, safety, inheritance."