Continued curbs on imports of gold would lead to a severe shortage of raw material in the Indian market, feel traders

Worried about the impact of curb on import of gold on domestic market as well as export earnings, the Finance Ministry and the Reserve Bank of India (RBI) are in talks with bullion dealers and gems and jewellery associations to unlock the huge gold holdings in the hands of consumers by launching a scheme to buy\lease gold from them and in turn supply to the industry.

The move comes following concerns expressed by jewellers and gold traders that with the onset of the festive season, continued curbs on imports of gold would lead to a severe shortage of raw material in the Indian market, which along with rising prices could hit sales of gold jewellery and also have an adverse impact on exports.

India, the world's top gold buyer, has taken a series of measures this year to curb demand for bullion, which is its second-biggest import after oil, as it looks to reduce its trade deficit.

“We are in talks with the Finance Ministry and the RBI and some other banks for launch of a scheme wherein at the frontend jewellers will collect (buy or lease) gold from the domestic market and give it to banks which will then give it to the industry,” Haresh Soni, Chairperson, All India Gems and Jewellery Trade Federation told The Hindu.

“The consumer can either sell the gold or loan it with a 3-year lock-in period. The customer will benefit in terms of getting interest on the same and tax-benefits along with getting the gold back at the time of maturity,” he explained, adding that they have received positive response from all and the scheme is likely to be implemented soon.

The gold potential in the household sector is pegged at about 25,000 tonnes, according to experts. Even if 10 per cent of this value is unlocked by offering sops to commodity owners, it will cover for nearly three years of imports, an industry expert explained, adding that presently, the country imports nearly 900 tonnes of gold per annum.

However, some experts have raised concerns with regards to implementation of the scheme as gold in India is not just considered a safe haven but also carries with it a lot of sentimental and cultural value. According to them, at a time when all is not well at the economic front and the wedding and festive season is approaching, it is not likely that people will want to part with the yellow metal.

Elaborating on the problem, Mr Soni said, “No official imports have taken place since July 22. Since, there has been no raw material supply there is scarcity of metal to meet domestic demand as well as for exports. Due to the curbs on imports, rise in other duties and depreciation of rupee, it is the organised sector that suffers not the unorganised sector. As of now the policy is not clear. If imports do not take place there will be a chaos with the onset of festive and wedding season.”

The shortage of gold is also threatening jewellery export orders due to delay in manufacturing of ornaments.

“The rise in import curbs, increasing of duties will lead to a rise in input cost, which will in turn affect the production of jewellery, making the business uncompetitive,” an industry expert said.

He added that the lack of raw material supply will affect manufacturers and may result in cancellations of orders, leading to significant impact on the exports during the next month. This will affect supply and balance of trade as far as jewellery is concerned. “The importers would turn to countries such as Malaysia and Hong Kong, which face no such problem,” he said.

Pankaj Parekh, Vice-Chairman, Gems and Jewellery Export Promotion Council said, “Theoretically, there should have been a drought in the market as since July 22 not even a gram of gold has been imported into the country. But that is not the case so far where domestic market is concerned because firstly the demand has declined as the prices of the metal are very high. Then there is recycled gold that is coming into the market, plus as far as domestic market is concerned grey market is also catering to the demand. So while there is not so much shortage for supply for domestic market, the exports will take a hit.”

On suggestions by some jeweller associations that the government should supply for consumption during the festival season from the RBI’s existing reserves of about 600 tonnes of yellow metal, Mr Soni said “that is not possible as it will lead to downgrade for India by credit rating agencies”.

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