According to a report by the Global Trade Research Initiative (GTRI), there was a nearly 60-fold increase in silver imports from the United Arab Emirates (UAE) during the last financial year, which is considered unusual. The UAE does not produce silver, and this sharp rise in imports suggests a potential violation of the rules of origin established by India and the UAE under their free trade agreement, effective since May 2022.

The think tank, led by former trade officer Ajay Srivastava, noted that silver imports from the UAE surged from $29.2 million in FY23 to $1.74 billion in FY24, partly because India applies an 8 percent duty under the UAE trade deal, lower than the 15 percent Most-Favoured-Nation (MFN) tariff imposed on imports from other countries.

“However, this trade is unusual because the UAE does not produce silver; it imports large silver bars, melts & converts these into silver grains. A check with global refiners will show that value addition in such a process is much less than 1 per cent as opposed to 3 per cent required under the FTA. Despite this, traders claim and the UAE authorities certify a 3 per cent value addition to meet CEPA rules of origin,” Srivastava said.

According to GTRI, there is a pressing need to implement a robust monitoring mechanism to oversee import volumes and values. This would facilitate prompt policy responses to unexpected spikes and ensure thorough verification of asserted value additions by refiners based in Dubai, particularly in gold and silver imports. Such measures are crucial for upholding compliance with rules of origin outlined in the trade agreement.

“High import duties in India on gold, silver and jewellery at 15 per cent are at the root of the problem. The government should consider lowering tariffs to 5 per cent which will arrest large-scale smuggling and other misuse,” the think tank said.

Srivastava also highlighted that the significant 7 percent tariff arbitrage has led to a revenue loss of Rs 1,010 crore for India in FY24. He cautioned that this revenue loss could escalate further, considering India’s commitment to eventually eliminate tariffs on unlimited quantities of silver imported from the UAE within the next eight years.

In FY24, India’s total silver imports amounted to $5.4 billion globally. With tariffs set to phase out over the next eight years, a substantial portion of these imports are expected to shift to the UAE, resulting in an estimated revenue loss of Rs 6,700 crore due to the tariff advantage enjoyed by imports from the UAE, according to GTRI. This trend is primarily driven by the lower tariffs offered by India under the trade agreement.