Tackling the menace of gold smuggling

Judging by the avalanche of gold flowing into the country, the euphemism 'Sonar Bangla' seems to be crystallising into reality! Every other day the media carries news of big hauls of gold bars and coins intercepted by the law-enforcement agencies at bizarre locations. Incoming passengers and aircraft crews are the principal purveyors. They stash the gold in their baggage, undergarments, shoes, electronic appliances, toilets and nooks and crevices of the aircraft. Some innovative among them have contrived a weird technique of concealing it in their bowels with option to disgorge it at the hideouts of the recipients.
Typically, the international airports at Dhaka and Chittagong bearing the holy names of two great saints are the main gateways for this unholy business. One media report says that 'seven syndicates' and another strong crime cartel called 'G-5' are active at the Dhaka airport. The smuggled goods, the report says, pass through 19 agencies present at the airport.
The gold consignments intercepted by the law enforcers are, to use a hackneyed phrase, only the tips of the iceberg. In the context of huge demand for gold in the country the actual inflow would be no less than one hundred times the quantity they seize. In recent months the flow has gathered added momentum on account of use of Bangladesh as a corridor by the Indian smugglers following the hike of the import duty by the Indian government from 2.0 to 10 per cent for import of gold bullion and 15 per cent for gold jewelry.
Sceptics say that occasional interceptions of illegally imported gold consignments are only for public consumption to camouflage the huge dimension of the inflow. One newspaper report says that the recent spate of seizures are actually attributed to the rivalry among the competing groups of smugglers who tip off the authorities when big consignments are sent by their rivals from Dubai or other locations.   
The unabated influx of gold is symptomatic of the flaws in the macro-economic policies that failed to recognise the factors impinging on demand for and supply of gold in Bangladesh. There are always compelling reasons for people to demand gold for the inevitable dowry at the weddings of their offspring, gifts on special occasions and simply for storing the value of their assets in the backdrop of falling value of the fiat money. Emergence of a phalanx of nouveau riche has added to the surge of demand for this yellow metal.      
Although theoretically gold is a luxury item it is not as luxurious as other imported luxury items  like Mercedes-Benz and SUVs (Sports Utility Vehicles) used by the richer sections of the community. Given the strong internal demand, the price elasticity of gold is low i.e. changes in price do not have strong influence on the demand pattern. The culture centring on gold is so deeply embedded in the society that one cannot simply wish it away or employ a bevy of law enforcers to stop the inflow. Media reports suggest that many of those employed to intervene sooner or later join the fray to collect a slice of the bonanza from this lucrative trade.
The issue at stake falls within the purview of economics but successive governments have been unsuccessfully trying over the decades to address it with guns and sticks. Realising the folly of using guns, other countries in the subcontinent have opened up the opportunity for import of gold officially on payment of a nominal amount of duty. Recently, however, India has raised the import duty from 2.0 to 10 per cent for gold bullion and 15 per cent for gold jewelry. It served only to create jobs for the smugglers in India and their counterparts in the neighbouring countries while gold continues to seep in with renewed intensity.  
Bangladesh does not have any pragmatic policy to allow import of gold excepting a small quantity of 200 grams by incoming passengers. It goes without saying that a country of over 160 million cannot depend on uncertainty of casual import of gold by odd passengers. Unfortunately, there are not many who are prepared to think out of the box to address this issue. And there are vested groups who would throw in their full weight to block any reforms.
The attempt to block inflow of gold, obviously with the objective of saving foreign exchange, is a typical zero-sum game. The amount of official foreign exchange saved by restricting imports is matched by the loss of foreign exchange consisting of migrants' remittances that are diverted to finance the smuggled gold.
Another fear that keeps the authorities from opening up the opportunity for official import is that gold imported with foreign exchange tends to leak to the neighbouring countries. What is not realised is that we run huge imbalances in the informal trade with our neighbours. One option to settle the imbalance is diverting potential remittances from abroad, chiefly migrants' remittances, and another is shipment of gold. The cross-border informal trade is an anathema for the economy and no efforts need be spared to curb it. Until, however, we are able to stop it, there is no escape from using foreign exchange either directly or by gold with some value addition.
We do not have reliable data on the level of demand for gold in Bangladesh. However, based on the demand pattern in India (one thousand tons annually) estimated by the World Gold Council, and factoring in other parameters like population and GNIs (Gross National Income) of the two countries, the demand in Bangladesh which shares a common socio-economic culture with India, the likely demand for gold in the country would be in the region of 65 tons worth about Tk 200 billion (Tk 20,000 crores) a year.  
There could be different modalities for import but the one that looks reasonably safe is to entrust the job to a reputable bank or TCB for resale with a markup of 5.0 to 7.0 per cent over the cost of import. The Bangladesh Bank, law permitting, may also step in with its experience in handling auctions of seized gold. It will not only take the steam away from the smuggling fraternity but add transparency to this trade and generate handsome revenue for the government.
The writer is a former Executive Director of Bangladesh Bank. [email protected]