Why India's gold imports from Dubai may rise
What's the story
The recent hike in import duty on gold from 6% to 15% may lead to a surge in imports from Dubai, according to think tank Global Trade Research Initiative (GTRI). The change alters the economics of precious metal imports from the United Arab Emirates under the India-UAE Comprehensive Economic Partnership Agreement (CEPA).
Import strategy
India allows gold imports from Dubai at reduced tariffs
India has been allowing gold imports from Dubai at tariffs 1% lower than the normal Most-Favored-Nation (MFN) rate, under a Tariff Rate Quota (TRQ) system. The quota started at 120 tons per annum in 2022 and is expected to increase to 200 tons by 2027, accounting for nearly one-fourth of India's annual gold imports.
Tariff impact
UAE not a gold or silver miner
The GTRI noted that with the new MFN tariff structure pushing effective duties to 15%, gold imported under the UAE quota would enter at 14%. This widening tariff gap may spur greater routing of global bullion through Dubai, despite the fact that UAE isn't a miner of gold or silver.
Silver
Arbitrage opportunity created for silver imports
Under the CEPA, India had also agreed to gradually cut import duties on silver from 10% to zero over a decade starting May 2022. The concessional tariff on silver imports from UAE currently stands at 7%. GTRI Founder Ajay Srivastava said with India now raising the general tariff to 15%, an arbitrage opportunity for imports routed through Dubai has been created.