Jewellers, bullion trade worried about additional curbs on gold imports

November 15, 2014: Indian jewellers and the bullion industry are perturbed that the Reserve Bank of India (RBI) may consider introducing additional restrictions on the import of gold. This follows reports that gold imports in the month of October 2014 rose several-fold to 150 tonne levels from the year-ago figure of 25 tonnes.

"If additional curbs on gold imports are announced, it would have a huge adverse impact," Haresh Soni, Chairman, All India Gem & Jewellery Trader’s Federation (GJF), which represents interests of more than 30,000 members, said. "High imports were a one-off owing to Diwali and the fourth quarter traditionally sees the highest demand and high level of imports are a consequence of that."

In 2013, in order to address the alarmingly high current account deficit (CAD), the government had hiked import duty on gold to 10 per cent and introduced the 80:20 scheme where nominated agencies could import gold and provided they exported 20 per cent of the consignment. This was relaxed in May 2014 when start and premier export houses were allowed to import gold and RBI allowed banks and the agencies to provide gold for domestic use to the industry.

"No doubt the government is concerned about the impact on CAD and the need to contain it," Mr. Soni said. "We will be informing our retailer-members to voluntarily stop sale of coins and bars. Last year, we had resorted to the same measure and that met with good results."

However, Bhargav Vaidya, bullion analyst and committee member of India Bullion & Jewellers Association (IBJA) felt it seemed unlikely that new curbs would be imposed. "Last year when restrictions were introduced, gold prices were higher and crude oil prices are now about 30 per cent lower. India’s balance of payments position is thus not uncomfortable and I do not expect any new restrictions."

An 'unintended consequence' of the government’s gold import curbs was the rise in smuggling and the grey market for the precious metal, according to P.R.Somasundaram, MD – India, World Gold Council (WGC) "as 10 per cent import duty is a huge arbitrage." He estimated that gold smuggled into India would total around 200 tonnes in calendar 2014 out of a demand of around 850-950 tonnes.

Courtesy: The Hindu