Red Flags Raised Over Silver Imports from UAE Through GIFT City

  • July 8, 2024
  • Posted by: OptimizeIAS Team
  • Category: DPN Topics
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Red Flags Raised Over Silver Imports from UAE Through GIFT City

Sub: Economy

Sec: External Sector

In a significant disruption for the bullion market, 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. This could potentially cause substantial revenue losses for the exchequer over time.

  • Major Disruption in Bullion Market:
    • Nearly all of India’s silver imports are now managed by private players via GIFT City exchange.
    • This shift could lead to significant revenue losses for the government.
  • Call for Investigation:
    • A trade research body has requested a probe into relationships between export and import firms to identify potential conflicts of interest.
    • There’s concern that this trend could extend to gold, platinum, and diamonds, disrupting traditional import practices and market dynamics.
  • Surge in Imports from UAE:
    • India’s imports of gold and silver from the UAE surged by 210% in 2023-24, reaching $10.7 billion.
    • Total silver imports stood at $5.4 billion.
  • Dominance of Dubai in Silver Imports:
    • In May, 87% of India’s global silver imports came from Dubai at a reduced 8% duty, cleared through the GIFT City exchange.
    • Since December 2023, GIFT City has been handling all silver imports from the UAE, leading to other ports being virtually abandoned.
  • Concerns Over Rules of Origin:
    • Earlier attempts by banks to import silver from the UAE through other ports were questioned for not meeting rules of origin of the India-UAE free trade deal.
    • GTRI flagged the issue, highlighting that GIFT City imports might not meet the specified rules of origin requirements, unlike other ports.
  • Import Duty and Regulatory Loopholes:
    • India imposes a 15% import duty on silver, with imports restricted to RBI/DGFT-nominated institutions.
    • GIFT City, however, registers private traders and has not encountered rules of origin issues flagged elsewhere.
  • Zero Tariff Agreement:
    • Under the India-UAE CEPA signed in 2022, the duty on silver imports is set to reduce to 0% over 10 years, provided Dubai exporters meet the rules of origin.
    • GTRI warns this could result in a revenue loss of ₹6,700 crore as all silver imports are likely to come from the UAE due to tariff arbitrage.
  • Need for CEPA Renegotiation and Stricter Checks:
    • GTRI suggests renegotiating CEPA terms to nullify duty arbitrage and implementing rigorous checks on value addition claims by Dubai exporters.

India-UAE Comprehensive Economic Partnership Agreement (CEPA)

Overview:

  • Purpose: The CEPA between India and the UAE aims to enhance trade and economic cooperation between the two countries.
  • Significance: It is designed to reduce tariffs, promote investment, and create new opportunities for businesses in both nations.

Key Provisions:

  • Tariff Reductions:
    • Gradual reduction of tariffs on various goods traded between India and the UAE.
    • Specific provisions for reducing import duties on precious metals like gold and silver, with tariffs set to reduce to 0% over a span of 10 years.
  • Rules of Origin:
    • Criteria used to determine the national source of a product.
    • Requirement: Goods must meet specified criteria to qualify for reduced tariffs under the CEPA.
    • Concerns: Compliance with rules of origin has been questioned, especially for imports through the GIFT City exchange.
  • Trade Facilitation:
    • Simplification of customs procedures to expedite the movement of goods.
    • Enhanced cooperation to combat customs fraud and improve compliance.
  • Market Access:
    • Improved access for Indian goods and services in the UAE market, and vice versa.
    • Emphasis on sectors like textiles, gems and jewelry, pharmaceuticals, and engineering goods.
  • Investment Protection:
    • Provisions to protect and promote bilateral investments.
    • Framework for resolving investment disputes.
  • Sector-Specific Agreements:
    • Focus on sectors such as services, digital trade, intellectual property, and public procurement.

Global Trade Research Initiative (GTRI)

  • Purpose: GTRI is a think tank focused on analyzing and researching global trade policies and their impact on economies.
  • Activities:
    • Conducts research on international trade agreements and their implications.
    • Provides policy recommendations to governments and stakeholders.
economy Red Flags Raised Over Silver Imports from UAE Through GIFT City