India Faces Rs 63,000 Crore Annual Revenue Loss from UAE Gold, Silver Imports

India Faces Revenue Loss of Rs 63,000 Crore Annually from UAE Gold, Silver Imports

MUMBAI: The recent free trade agreement between India and the UAE permits unlimited imports of gold, silver, platinum, and diamonds from the UAE into India with zero tariffs. According to a comprehensive report by the Global Trade Research Initiative (GTRI), this policy change would result in annual revenue losses exceeding Rs 63,000 crore for India.

Major Shift in Import Dynamics

The GTRI report highlights a significant shift in the import business, moving it from banks to a select few private traders. This shift is expected to replace top suppliers with Dubai-based firms, potentially causing a ripple effect across various sectors. The duty-free imports of gold and silver, in particular, will likely disrupt the domestic diamond and jewellery industry, which has traditionally relied on more transparent supply chains.

Impact on the Diamond and Jewellery Industry

One of the critical points raised by the GTRI report is the disruption of the domestic diamond and jewellery industry. With major imports now coming from Gift City—a financial hub with noted transparency issues—the industry may face significant challenges. The report calls for an urgent review of the current policy to address these emerging issues and safeguard domestic interests.

Tariff Changes and Their Implications

The India-UAE free trade provisions will allow unlimited imports of gold, silver, platinum, and diamonds from the UAE into India with significantly reduced or zero tariffs over the coming years. Presently, gold can be imported from Dubai at a 5% duty, but this will drop to zero in three years if the alloy contains 2% platinum. Similarly, silver imports from the UAE have surged due to an 8% duty under the pact, compared to a 15% tariff earlier, resulting in substantial tariff arbitrage. This reduction in tariffs is expected to lead to a shift in import sources, primarily benefiting UAE exporters.

Long-Term Revenue Impact

India is set to reduce the duty on silver to zero over ten years, which will result in a notable revenue loss due to the shift of imports from other countries to the UAE. The report points out that this shift is already underway, with significant increases in imports of precious metals from the UAE.

Import Statistics and Trends

India’s total imports from the UAE decreased by 9.8% from $53.2 billion in FY2023 to $48.0 billion in FY2024. However, this overall decline masks a significant increase in the import of gold and silver, which rose by 210%, from $3.5 billion to $10.7 billion during the same period. On the other hand, imports of all other products from the UAE declined by 25%, dropping from $49.7 billion in FY2023 to $37.3 billion in FY2024.

Concentration of Silver Imports

The GTRI report previously noted that about 87% of India’s silver imports came from Dubai in May 2024. This trend shows that imports from other countries and Indian ports have almost ceased, with nearly all silver imports now routed through Dubai via the Gift City exchange. The import of silver grains from Dubai occurs at an 8% customs duty, significantly lower than the usual 15% through the Gift City exchange in Gandhinagar.

Market Disruptions

Importers are passing on a share of the profit by offering 5-6% discounts in the local market, causing significant disruptions in India’s silver market. This has led to the cessation of imports by all nominated agencies, reducing import duty and GST collections. The standard import duty on silver in India is 15%, but firms can import silver from the UAE at an 8% duty if they meet the conditions set by the India-UAE Comprehensive Economic Partnership Agreement (CEPA).

The GTRI report calls for an urgent review of the India-UAE free trade agreement’s provisions to mitigate the potential long-term revenue losses and market disruptions. Policymakers need to address these concerns to ensure that the domestic industries remain competitive and that the country does not face undue economic strain from these trade policies. The balance between fostering international trade relationships and protecting domestic economic interests is delicate and requires careful consideration and timely action.