"Grains for Gold: Indian Export Restrictions Fuel a Surge in Barter Smuggling"

Smuggling Fuels Gold-for-Grain Trade Between India and Bangladesh

Guards at a border checkpoint between India and Bangladesh intensively inspect vehicles and frisk passengers, searching for smuggled gold, drugs, and food staples like sugar, grains, and onions.

"We apprehended smugglers in August transporting sugar hidden beneath a layer of sand," reported a Border Security Force (BSF) officer in Shillong, northeastern India, who requested anonymity.

Despite such measures, the illegal barter trade of gold for food has surged since mid-2022. India's export restrictions have created significant price disparities with Bangladesh, resulting in combined government revenue losses amounting to billions of dollars. This smuggling distorts India's bullion trade by offering discounts below official prices, conceals unaccounted wealth, and undermines New Delhi's efforts to curb food inflation by limiting exports. Simultaneously, it disrupts Bangladesh's strategies to reduce imports and bolster local agricultural production.

Even after India, the world's second-largest gold consumer, reduced its gold import duty by nine percentage points in July—bringing it to a decade low—the practice persists. Higher food prices in Bangladesh, a country heavily reliant on Indian supply, continue to drive the smuggling.

A Network of Barter Smuggling

Instead of leveraging price differences between Indian and international gold markets, grey market operators barter gold for smuggled staples like sugar, wheat, and onions. Goods are concealed in inventive ways; in October, BSF officers in West Bengal arrested a smuggler carrying 4.7 kg (10.3 lb) of gold worth ₹35.1 million ($414,000) hidden in a motorcycle's air filter.

According to the BSF, smugglers often use gold payments to cover the cost of food items already sent into Bangladesh. India's non-lethal border policy with Bangladesh offers less deterrence than its armed approach on the western border with Pakistan, officers say.

A Lucrative Arbitrage Opportunity

India, traditionally Bangladesh's largest grain supplier, imposed curbs on staples like wheat, sugar, rice, and onions starting in 2022 to rein in food inflation. At the same time, a 50% surge in gold prices created an attractive arbitrage opportunity, especially as food prices in Bangladesh rose as much as 150% above Indian levels.

As a result, the gold-for-grain trade has flourished. Officials estimate that over 2 million metric tons of staples have been smuggled into Bangladesh annually since India's export curbs, a sharp rise from less than 300,000 tons before the restrictions.

"The government imposes export limits to lower domestic prices, but smuggling undermines this strategy, leaving farmers to bear the brunt," said Balwant Holkar, a trader in Maharashtra's Lasalgaon.

India also recorded illegal imports of 156 metric tons of gold in 2023, valued at $9 billion—up from 100 metric tons in 2022, according to the World Gold Council. Industry and government sources attribute nearly a third of this to smuggling from Bangladesh, primarily to pay for smuggled grain. The estimated tax loss to New Delhi from gold smuggling is $1.6 billion annually.

Bangladesh's High Import Costs

India's restrictions on wheat, sugar, rice, and onions coincided with Bangladesh's high import taxes, further incentivizing smuggling across the porous 4,000 km (2,500 miles) border. A Dhaka-based grains trader highlighted that these conditions made it highly lucrative to move grain illegally.

In 2012, smugglers earned ₹54,000 per kilogram of gold due to India’s import duties. This margin peaked at ₹1.3 million per kg in mid-2024 and remains profitable at ₹700,000 per kg, even after the July tax cut.

"Grey market operators enjoy significant profits even after accounting for operational costs," said James Jose, secretary of the Association of Gold Refineries and Mints.

Challenges for Official Trade

India's sugar export ban has doubled the sweetener's price in Dhaka compared to eastern India, attracting grey market operators. Official imports of raw sugar in Bangladesh dropped 25% to 1.386 million metric tons in the fiscal year ending June, with an estimated 450,000 tons smuggled to fill the gap.

Indian couriers involved in smuggling report steady work. "There’s no shortage of jobs," said one courier, who is paid on delivery of gold at short notice.

This cycle of illegal trade, driven by high profits and loose enforcement, continues to weaken efforts to stabilize food prices and boost local agricultural production in both nations.