As per Global Trade Research Initiative (GTRI), Silver imports from the UAE increased by 5,853 per cent, from $29.2 million in FY23 to $1.74 billion in FY24 which is an increase of almost 60 times as compared to previous year. This increase in imports is suspicious as UAE doesn’t produces silver but instead imports large silver bars, melts & converts these into silver grains.
Arbitrage gain is almost negligible
The current price in India for 1kg of silver is INR 91,500 while in UAE it is 3,485 AED or INR 79,155, the arbitrage leaves a gain of INR 12,300 on a kg without accounting for 8% of import duty and logistics cost which makes the profit almost negligible. So this jump in imports clearly tells a different story and raises some alarms.
Decoding the import rise
The rising import trend can be reasoned with the very recent Free Trade Agreement (FTA) between India and UAE but still the numbers indicate a malafide in form of “breach of origin” where a value addition of at least 3% is required to avail benefits of FTA whereas global refiners will show that the value addition in melting and producing silver grains is much less than even 1 per cent. The UAE authorities certify 3 percent value addition to meet CEPA rules of origin.
This malpractice is incentivized by FTA since India charges 8% import duty over UAE as per the trade agreement, versus the 15% Most-Favoured-Nation (MFN) import tariff on other nations.
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Domestic loss
“High import duties in India on gold, silver and jewellery at 15 per cent are at the root of the problem. The government should consider lowering tariffs to 5 per cent which will arrest large-scale smuggling and other misuse,” said Mr. Ajay Srivastava and further added that the 7% arbitrage rate has resulted in loss of revenue of almost INR 1100cr which is expected to reach INR 6700cr as India will be dropping the tariffs to 0% in the next eight years.
Potential Approach
To save India from a potential loss of thousands of crores in near future, steps must be taken immediately in form of reduction of tariff duties on jewellery from 15% to 5% which could reduce large-scale smuggling and arbitrage.
Government should also set up a watchdog body to look upon these figures of trades from our so-called Most Favoured Nations to ensure we are not being cheated in the long run. Moreover there should be a check on credibility of 3% value addition claims by FTA countries.
About the Author
Mr Akshat Jain, is pursuing his post graduation in Economics from School of Economics, DAVV. He is interested in economics, literature, cinema and automobiles. During his spare time he likes to listen to music, read or play chess.
