Red Flags on Runway Silver Imports from UAE by Gift City
Surge in Silver Imports from Dubai via Gift City Raises Revenue Concerns and Calls for Investigation into Trade Practices
Red flags over runaway silver imports from UAE through Gift City
Almost all of India’s silver imports are now being handled by a few private players bringing the white metal from Dubai through the Gift City exchange, significantly disrupting the bullion market and potentially causing considerable revenue losses for the exchequer over time.
A trade research body has called for a probe into the relationships between export and import firms to identify and address any potential conflicts of interest. The body warns that this trend in the silver market could extend to other precious metals like gold, platinum, and diamonds, further disrupting traditional import practices and market dynamics.
India’s imports of gold and silver from the UAE surged by 210% in the 2023-24 period, reaching a total of $10.7 billion. Specifically, silver imports accounted for $5.4 billion of this total.
In May alone, 87% of India’s global silver imports originated from Dubai, entering the country at a reduced 8% duty and being cleared through the Gift City exchange in Gandhinagar. This exchange has been responsible for clearing all silver imports from the UAE since December 2023, resulting in the virtual abandonment of imports from other countries and ports.
Earlier attempts by some banks to import silver from the UAE through other ports were scrutinized for not meeting the rules of origin stipulated in the India-UAE free trade agreement. The Global Trade Research Initiative (GTRI) highlighted this issue in a report, noting the inconsistencies in how different ports handle the rules of origin.
“The key concern is how the imports cleared through Gift City meet the rules of origin requirements specified in the India-UAE CEPA [Comprehensive Economic Partnership Agreement] when importers from other ports fail to meet these,” the report stated.
India imposes a 15% import duty on silver and only permits institutions nominated by the Reserve Bank of India (RBI) and the Directorate General of Foreign Trade (DGFT) to import the precious metal. However, the GIFT City exchange does not restrict imports to RBI/DGFT-nominated agencies. Instead, it registers private traders and has not encountered the rules of origin issues flagged by customs authorities at other ports.
Under the CEPA signed in 2022, India agreed to reduce the duty on silver imports to 0% over ten years, contingent on Dubai exporters meeting the rules of origin conditions. This phased reduction has raised alarms about future revenue implications.
“As the tariff becomes zero over the next eight years, all silver imports will likely come from the UAE, resulting in a revenue loss of ₹6,700 crore. This trade is driven solely by the tariff arbitrage offered by India,” GTRI warned.
Ajay Srivastava, chief of GTRI, expressed particular concern about the discrepancy in how imports through Gift City and other ports meet the rules of origin requirements. “The key concern is how imports cleared through Gift City meet the rules of origin requirements specified in the India-UAE FTA when importers from other ports fail to meet these. This is strange as the Dubai-based suppliers may be the same in both cases. There is apprehension that imports from Gift City might violate rules of origin conditions,” he said.
To address these issues, GTRI has suggested renegotiating the CEPA terms to eliminate the duty arbitrage. It also recommends more rigorous checks on Dubai exporters’ value addition claims by the Gift City exchange and a thorough investigation into the relationships between export and import firms to identify and address any potential conflicts of interest or familial ties.
Additionally, GTRI proposed restricting silver imports to nominated agencies authorized by the RBI and DGFT to minimize the risk of misdeclared imports.
“When banks like Yes Bank and RBL Bank attempted to import silver from the UAE at the concessional 8% duty through Chennai and Bengaluru ports, customs authorities demanded details on the rules of origin. The firms could not comply,” the GTRI report noted. Officials rightly required proof that the imports met the CEPA conditions, including evidence of 3% value addition and details of the value-addition process in Dubai.
The GTRI’s recommendations aim to safeguard the integrity of India’s import practices and ensure that the benefits of trade agreements are not undermined by discrepancies and potential abuses in the system.
