Centre Urged to Revise Gold, Silver Concessional Duty Under India-UAE CEPA

Centre Urged to Revise Gold and Silver Concessional Duty under India-UAE CEPA

The Delhi-based think tank, Global Trade Research Initiative (GTRI), has released a detailed report urging the Indian government to “reassess and potentially revise” the concessional duty rates on gold and silver imports under the India-United Arab Emirates (UAE) Comprehensive Economic Partnership Agreement (CEPA). This call to action is aimed at addressing the significant arbitrage driving the sharp increase in gold and silver imports, which poses economic challenges for India.

During the fiscal year 2023-24, inbound shipments of gold and silver from the UAE surged by an astonishing 210 percent, reaching a total value of $10.7 billion. This dramatic rise in imports occurred despite an overall contraction of 9.8 percent in India’s total imports from the West Asian nation. It is important to note that the India-UAE CEPA, which facilitates this trade, came into effect in May 2022, establishing the framework for these import activities.

Under the terms of the CEPA, India grants a 7 percent customs duty concession on the import of unlimited quantities of silver and a 1 percent concession on up to 160 metric tonnes of gold. The GTRI report highlights that this substantial increase in the import of these precious metals contributes significantly to India’s higher current account deficit. The report points out that gold and silver often function more like financial instruments than typical trade items, leading to the recommendation that these commodities should ideally be excluded from any free trade agreement (FTA).

The GTRI report goes further to suggest that if such decisions are necessary, they should be made by the Reserve Bank of India (RBI) rather than the Department of Commerce. This recommendation underscores the need for a specialized approach in handling the importation of precious metals, given their unique financial characteristics and impact on the economy.

In addition to revising duty rates, the GTRI emphasized the importance of establishing a robust monitoring mechanism to track the volumes and values of these imports. Such a system would ensure that the government can quickly respond to any unusual spikes in import activities, thereby maintaining economic stability. The report notes that the high import duties currently imposed on gold, silver, and jewelry in India—set at 15 percent—are the root of the problem. To address this, the think tank suggested lowering these tariffs to 5 percent, which would help reduce large-scale smuggling and other forms of misuse.

Since July of the previous year, the Indian government has restricted the import of studded gold jewelry from all countries, with the UAE being the only exception under the trade deal. Ajay Srivastava, the founder of GTRI and a former trade ministry official, pointed out that this policy framework has led to a significant increase in imports from the UAE, thereby exacerbating India’s trade deficit.

The report states, “The current import of gold and silver from the UAE is unsustainable as they don’t mine gold or silver or add sufficient value on imports.” It further explains that trade dynamics will shift to any country that receives larger tariff concessions from India. The report argues that low tariff imports of gold and silver primarily benefit a few importers who capture all profits arising from tariff arbitrage without passing these benefits on to consumers.

The GTRI report calls for a comprehensive reassessment of the concessional duty rates under the India-UAE CEPA. It recommends the establishment of a robust monitoring mechanism to track import volumes and values, a potential reduction in import tariffs to discourage smuggling and misuse, and a strategic decision-making process involving the Reserve Bank of India. These measures are essential to addressing the unsustainable surge in gold and silver imports and mitigating their impact on India’s trade deficit and overall economic health.