“It [smuggled gold] might be destined for Nepal rather than India because our country too doesn’t have sufficient gold especially during wedding seasons when the demand grows,” Nepal Gold and Silver Dealers’ Association president Mani Ratna Shakya said.
Still, demand in India far outstrips tiny Nepal. India is the world’s biggest consumer of gold, followed closely by China. Millions of Indians buy gold in the form of jewelry, bars and coins as a traditional gift for brides and during Hindu festivals. For many, gold is also a hedge against inflation, as it is traditionally regarded as an asset that is expected to maintain or increase its value.
Almost all of India’s gold is imported, making it the second-biggest contributor after oil to the current account deficit. The widening deficit has caused alarm among credit ratings agencies and contributed to India’s slowing economic growth.
India must sell rupees to buy the gold in largely US dollar-denominated trades, which is putting downward pressure on the ailing local currency, the worst-performing in Asia this year.
The government, desperate to kick-start the economy ahead of elections next year, has announced a series of measures, including raising duties on bullion imports last month to a record 10 percent, the third hike this year.
Even with the duty increases, gold imports in July rose to US$2.9 billion from US$2.45 billion a month earlier, although the amount is still down from last year.
Smugglers say such an insatiable demand keeps them busy. One arrested near the Nepal-China border in December reportedly boasted to police that it was the fourth time in three months he had smuggled gold into the Himalayan nation.
According to the Kathmandu Post, he was arrested in Dhulikhel, a resort town 30km north of Kathmandu that lies along the border highway, with 9kg of gold in his truck.