On either side of a border checkpoint between India and Bangladesh, guards comb vehicles and search passengers for illicit shipments of gold and drugs, as well as commodities staple foods such as sugar, grains and even onions.
“In August, we arrested smugglers who were carrying sugar hidden under a layer of sand in their vehicles,” said an officer of India's Border Security Force (BSF) in the northeastern city of Shillong. , who requested anonymity.
Despite these efforts, illegal bartering of gold for food has intensified since mid-2022, with export restrictions imposed by India resulting in a wide disparity with prices in Bangladesh, which resulted in losses of public revenue amounting to several billion dollars.
Smuggling distorts India's gold trade through discounts on official prices, hides unaccounted wealth and weakens New Delhi's efforts to curb food inflation by limiting exports.
At the same time, it undermines import reduction measures taken by Bangladesh to boost production by local farmers.
The practice of smuggling gold to buy grain persisted even after India, the world's second-largest gold consumer, cut its import duties by 9 percentage points in July, bringing them back to their lowest level. lowest in more than a decade.
This situation is explained by the sharp rise in food prices in Bangladesh, which traditionally depends heavily on Indian supplies.
But instead of simply exploiting the price difference between Indian and foreign gold, gray market operators use gold to barter commodities such as sugar, wheat and onions smuggled into Bangladesh .
The goods are hidden, a BSF officer said, citing the example of a smuggler from the Indian state of West Bengal, arrested in October with 4.7 kg of gold worth Rs 35.1 million. rupees ($414,000) hidden in the air filter of his motorcycle.
The officer, who spoke on condition of anonymity, said he was offered just 10,000 rupees to smuggle 18 gold biscuits to India to pay for food items already smuggled into Bangladesh.
On the India-Bangladesh border, the BSF enforces a non-lethal policy that reduces deterrence, unlike on the western border with Pakistan, where officers carry firearms to block illegal entries, added the officer.
LUCRATIVE ARBITRATION
Traditionally Bangladesh's largest grain supplier, India has imposed restrictions on exports of commodities such as wheat, sugar, rice, onions and pulses to stem food inflation from of 2022.
But gold prices have risen more than 50% since mid-year, encouraging gray market operators to exploit the arbitrage opportunity when food prices in Bangladesh soared 'at 150% compared to those of India.
The gold-for-grain trade has flourished as India has gradually tightened restrictions on food exports over the past two years, said a grain trader in the eastern city of Kolkata of the country, who spoke on condition of anonymity.
Officials estimate that more than 2 million tonnes of basic foodstuffs are smuggled into Bangladesh each year in exchange for gold, up from less than 300,000 tonnes before India's restrictions.
“The government limits agricultural exports to quickly bring down local prices. But smuggling weakens this strategy and farmers end up bearing the brunt of the restrictions,” says Balwant Holkar, a trader in Lasalgaon, in the state of Maharashtra. western India.
According to the World Gold Council (WGC), India illegally imported around 156 tonnes of gold last year, worth around $9 billion, compared to just 100 tonnes in 2022.
Nearly a third came from Bangladesh, according to industry and government sources, with most of it used to settle payments for smuggled grain, officials from the BSF and the Directorate of Revenue Intelligence (DRI) told Reuters. 'India.
Gold smuggling cost New Delhi about $1.6 billion in unpaid taxes last year, industry officials estimate based on WGC data.
DEPENDENCE ON IMPORTS
India banned wheat exports in mid-2022 and reduced exports of white rice and sugar in 2023, while levying high taxes on shipments of onions and parboiled rice.
But Bangladesh has kept import taxes high, making grain smuggling across a porous border that stretches more than 4,000 km even more attractive, a Dhaka-based grain trader said. who requested anonymity due to the sensitivity of the issue.
In 2012, when India increased import duties on gold, smugglers made a profit of Rs 54,000 per kilogram, which reached a peak of Rs 1.3 million in mid-2024. according to industry estimates.
Despite the reduction in taxes in July, margins remain lucrative at 700,000 rupees per kilogram.
“Even accounting for operational expenses, gray market operators still make significant profits,” said James Jose, secretary of the Association of Gold Refineries and Mints. “This is why smuggling persists, even after the reduction of customs duties.
Gold refining in India generates very low margins, but gray market operators offer deep discounts because they avoid taxes, said Harshad Ajmera of wholesaler JJ Gold House in Kolkata.
You can't compete with them,” Mr. Ajmera said, “you just lose market share.” “You just lose market share.
India's ban on sugar exports has driven up global prices, roughly doubling the price of the sweetener in Dhaka compared to its price in eastern India, attracting gray market players.
To pay for items from India, Bangladeshi buyers use cartels to deliver the gold across the border, where Indian suppliers exchange it for cash in Kolkata to boot a new business cycle.
After India's export ban, Bangladesh's official raw sugar imports fell 25% in the fiscal year that ended in June, to 1.386 million metric tons.
That deficit was made up with about 450,000 tons of smuggled sugar, mostly paid for in gold, some participants in the official trade said.
“In recent years, there has been no shortage of work,” said an Indian courier living near the border, adding that he was paid immediately when he delivered gold from Bangladesh with a day's notice.
($1 = 84.6825 Indian rupees)
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