Since mid-2022, smuggling of gold in exchange for food items has surged along the India-Bangladesh border, driven by India’s export restrictions and a significant price disparity between the two countries. India’s Border Security Force (BSF) actively tries to prevent such illegal activities, searching vehicles for smuggled goods like gold, drugs, and food staples, including sugar and onions. However, these efforts have had limited success as the illicit trade continues to thrive, causing billions in revenue losses for both nations. India imposed export curbs on staple foods like wheat, sugar, and rice starting in 2022 to control inflation. Meanwhile, gold prices in India increased over 50%, and food prices in Bangladesh surged up to 150% higher than those in India. This created a lucrative opportunity for grey market operators to smuggle food into Bangladesh, paying for it with gold. Despite India reducing its gold import duty in July 2024 to its lowest level in a decade, smuggling continues because the trade remains highly profitable due to the significant price differential for food.As Reuters reported on Wednesday, smugglers often hide gold in vehicles and other items, such as the example of a man arrested in October 2023 with 4.7 kg of gold concealed in a motorcycle air filter. The smuggling network uses gold to barter for goods, and cartels in Bangladesh help deliver gold across the border, with Indian suppliers exchanging it for cash. This cycle perpetuates the illegal trade, with an estimated 2 million metric tons of food staples smuggled into Bangladesh annually, up from under 300,000 tons before the export restrictions.The increased smuggling has had detrimental effects on India’s economy. The country saw a rise in illegal gold imports, with 156 metric tons of gold smuggled into India in 2023, valued at approximately $9 billion. Around a third of this gold originated from Bangladesh, often used to settle payments for smuggled grain and other food items. This smuggling causes India to lose an estimated $1.6 billion in unpaid taxes each year. Furthermore, the illegal trade undermines India’s efforts to reduce food inflation and negatively impacts local farmers in both India and Bangladesh.The situation is further complicated by India’s own import bans, which drive up global prices for food and sugar, encouraging smuggling. For instance, India’s ban on sugar exports caused a sharp increase in the price of sugar in Bangladesh, which is now about twice as expensive as in India. The illegal gold-for-food trade, therefore, remains an attractive proposition for grey market operators, with margins still highly profitable despite the July 2024 duty reduction, Reuters reported.Overall, while India attempts to curb food inflation through export restrictions, the rising smuggling activity undermines these efforts. The illegal trade not only causes financial losses but also exacerbates food shortages in Bangladesh, while impacting legitimate businesses in both countries.
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