Jewellers and the bullion industry are perturbed that the Reserve Bank of India may consider introducing additional restrictions on gold imports. This follows reports that gold imports rose to 150 tonnes in October from 25 tonnes in the same month last year.
“If additional curbs on gold imports are announced, it will have a huge adverse impact,’’ All India Gem & Jewellery Trader’s Federation (GJF) Chairman Haresh Soni 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, to address the alarmingly high current account deficit (CAD), the government had hiked the import duty on gold to 10 per cent and introduced the 80:20 scheme, where nominated agencies could import gold provided they exported 20 per cent of the consignment. This was relaxed in May when star and premier export houses were allowed to import gold and the 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.”
However, Bhargav Vaidya, bullion analyst and committee member of the 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, Managing Director, India, World Gold Council, “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.
