8th July 2024 (11 Topics)
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Runaway Silver Imports from UAE through GIFT City
Context
The recent surge in India's silver imports from the UAE via GIFT City has raised concerns over potential revenue losses and compliance with trade regulations.
Key Highlights of the Issue
- Significant Increase in Imports: India’s imports of gold and silver from the UAE jumped by 210% in 2023-24, reaching $10.7 billion, with total silver imports standing at $5.4 billion.
- Concentration of Imports: In May, 87% of India’s global silver imports came from Dubai at a reduced 8% duty, all cleared through the GIFT City exchange in Gandhinagar.
- Concerns Over Compliance: The Global Trade Research Initiative (GTRI) flagged concerns regarding the adherence to the rules of origin specified in the India-UAE Comprehensive Economic Partnership Agreement (CEPA).
Reason Behind the Situation
- Duty Arbitrage: The lower import duty of 8% through GIFT City, compared to the regular 15%, creates a significant arbitrage opportunity.
- Lack of Regulation: Unlike other ports, GIFT City does not limit imports to RBI/DGFT-nominated agencies, allowing private traders to exploit the system.
- Compliance Issues: Imports through other ports were questioned for not meeting rules of origin requirements, a concern seemingly ignored in GIFT City.
Impact of Such Practices
- Revenue Loss: As the tariff on silver imports reduces to 0% over the next 10 years under CEPA, India could face a revenue loss of ?6,700 crore.
- Market Disruption: The concentration of imports through GIFT City could disrupt traditional import practices and market dynamics.
- Potential Expansion: There is a risk that similar practices might extend to other precious metals like gold, platinum, and diamonds.
Required Measures
- Re-negotiation of CEPA Terms: To nullify the duty arbitrage and ensure fair trade practices.
- Enhanced Compliance Checks: Rigorous verification of value addition claims by Dubai exporters and stricter adherence to rules of origin.
- Restriction of Imports: Limiting silver imports to RBI/DGFT-nominated agencies to minimize the risk of misdeclared imports.
- Thorough Investigation: A detailed probe into the relationships between export and import firms to identify potential conflicts of interest or familial ties.
What is CEPA?
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Mains Practice Question
Q. "Examine the implications of India's growing trade deficit with the UAE in light of the recent Comprehensive Economic Partnership Agreement (CEPA). Suggest measures to ensure a balanced trade relationship while leveraging the benefits of the agreement."
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