Smugglers cash in on foreign cigarettes as gold loses shine

Cigarette smuggling is up 25 per cent; gold see a dip of 70 per cent

There has been an unprecedented fall of nearly 70 per cent in cases of gold smuggling seizures in 2015-16 over 2014-15, as smuggler focus has shifted to foreign cigarettes, which has a high profit margin relatively, said a DRI source.

Huge profit margin, high customs duty and increasing demand among youngsters have led to an exponential increase in cigarette smuggling. According to the Directorate of Revenue Intelligence (DRI) latest data, abot 138.6 million foreign cigarette sticks worth Rs 151 crore were smuggled in 2015-16, against cigarettes Rs 120 crore in 2014-15 -- a jump of 25 per cent.

In 2013-14 and 2012-13, the authorities had seized cigarettes worth Rs 11 crore and Rs 2.48 crore respectively.

"Significant increase in customs and excise duty rates on imported cigarettes makes smuggling a lucrative bet," said an ex- DRI official, requesting anonymity.

Cigarettes attract around 150 per cent customs duty and 25 per cent excise. This has turned the product into a margin game, as there is a 100 per cent profit in it. For instance, if an importer smuggles foreign cigarette worth Rs 50 lakh, an equivalent amount is earned as a profit, explained an official of the customs department.

"A foreign cigarette pack is available for Rs 100-150 in Dubai as compared to Rs 240-300 in India. Smugglers have created a chain of distribution in India that manages the entire cigarette story. Dubai continues to be the main source for smuggling to India," the official added.

This is the one reason why there has been a decline in the number of gold smuggling cases over the past one year. DRI data suggests that about 1,360 kg of the yellow metal worth Rs 340 crore was seized in 2015-16 as against Rs 1,120 crore in previous year -- a dip of nearly 70 per cent.

"The margin in gold smuggling is low, as one gets nearly 12 per cent of the total value," said the official cited above. "The fall was seen largely due supplier restriction followed by 80:20 gold schemes that causes disruption in the gold market. It took a lot of months for clarifications on the scheme. Leeway over the import of unrefined gold also affected the smuggling in a big way," said P R Somasundaram, MD, India of World Gold Council.

The modus operandi is easy for cigarettes smuggler as they are not detected by scanners used by custom at the airport. Another reason which is driving cigarette smuggling is the restrictions imposed on passengers. As per the current norms, passenger can carry one carton of 200 sticks. The earlier limit was two.