Red Flags Raised Over Silver Imports from UAE Through GIFT City

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.