India needs to rigorously verify the claimed value addition on gold and silver imports from the United Arab Emirates (UAE) and probe linkages between exporting and importing firms following a massive surge in imports of these metals last financial year, a report by trade policy think tank Global Trade Research Initiative (GTRI) said.
Under the India-UAE Comprehensive Economic Partnership Agreement (CEPA) operationalised in 2022, gold and silver shipments from the UAE enjoy duty concession of 1% and 7%, respectively. However, 3% local value addition is a must for availing of this concession.
So, instead of 15% import duty on gold from other countries, imports of the metal from the UAE are taxed at 14%. This concessional duty is for imports of up to 200 tonne per year.Silver imports from the UAE are taxed at 8%, instead of 15% for other countries.
The UAE is not a producer of any of these metals. It imports high-purity gold bars and converts it into unwrought gold for export to India. Similarly, silver bars imported from elsewhere are converted to silver grains. Both these processes involve value addition of around 1%, against 3% required to avail of the concessional duty under the CEPA.
Lower duties have resulted in imports of gold and silver from the UAE growing by 210% to $10.7 billion in FY24 from $3.5 billion FY23. Significantly, imports of all other products declined by 25% to $37.3 billion in FY24 from $49.7 billion in FY23.
Gold imports from the UAE rose by 147.6%, from $3 billion in FY23 to $7.6 billion in FY24, resulting in India losing Rs 635 crore in revenue. Silver imports increased by 5,853%, from $29.2 million in FY23 to $1.74 billion in FY24. Revenue loss on this account stood at Rs 1,010 crore in FY24.
Revenue loss will increase amid rise in imports as India has committed to make tariffs zero on unlimited volume of silver from the UAE within the next eight years. Even jewellery imports jumped 187% to $3.3 billion in FY 24.
Apart from tariffs, the government policy has also aided imports of gold and silver from the UAE, exacerbating India’s current account. The Directorate General of Foreign Trade (DGFT) supports gold jewellery imports from the UAE by restricting imports from other countries, GTRI said. On July 12, 2023, the DGFT restricted import of plain gold jewellery, and on June 11, 2024, it restricted import of studded gold jewellery from all the countries. In both the orders, an exception was made to allow import of gold jewellery from the UAE under the CEPA.
Apart from tighter monitoring of value addition norms, DGFT’s orders should be revisited to ensure a balanced import policy that does not overtly favour the UAE. Regulations around India International Bullion Exchange should be tightened to control the volume and nature of precious metal imports and the exchanges should not allow country-based exemptions, GTRI said.
Source: msn