The Kerala Gold and Silver Merchants Association has warned the restrictions on gold imports introduced recently by the Reserve Bank of India (RBI) would not yield the intended results but instead encourage gold smuggling and hawala trading in the yellow metal.
Explaining the association’s views on the RBI order, its president B. Girirajan made it clear on Friday the main objection was to the RBI directive that 20 per cent of gold imported by banks and other recognized agencies should be kept in customs bonded warehouses and 75 per cent of the gold kept in bonded warehouses should be exported as gold jewellery. This had been made a condition for getting permission for fresh gold imports.
In view of the RBI order, when a bank imports 100 kg of gold, it can release only 80 kg into market for sale. The remaining 5 per cent should be kept in customs bonded warehouses and 15 kg exported as gold ornaments if it wants to place fresh order for gold import. The RBI and Central government believe this measure would help bring down current account deficit. However, the merchants association thinks it would be counterproductive, Mr. Girirajan said.
The RBI restriction would lead to shortage of gold in market and artificial price rise in domestic market. The decline in gold price in international market would not be reflected in local market price because of the RBI order. There was a distinct possibility of gold price rising in domestic market also. These trends in turn would lead to smuggling and black marketing and hoarding of gold, Mr. Girirajan warned.
He said there were already clear indications smugglers and hawala traders were active and ready to exploit the situation. NRIs might be tempted to route their remittances through unauthorized channels. The net results would be diversion of NRI remittances from government coffers and loss of import duty that the government should have received through legitimate imports.
The association pointed out the artificial rise in gold prices would help speculators make big profits. Because of the latest RBI new regulation a bank would be able to import gold only four times a year.
While it was true uncontrolled gold imports had impacted adversely on the country’s foreign reserves, remedial action had to be devised in consultation with merchants’ associations, Mr. Girirajan said.
