Indian traders said they will start importing gold again over the next week or so after the central bank clarified a new rule that brought the flow of the precious metal into the world’s top gold consumer to a standstill at the end of July.
A resumption of imports would ease tight domestic supply and prices ahead of a festival and wedding season that kicks off next month. Indian imports would also support benchmark international gold prices, which hit a two-month high on Monday. Indian traders stopped imports on July 22 due to confusion over a rule issued by the Reserve Bank of India that was aimed at stemming the flow of gold into the country, not stopping it completely.
Gold imports are a big contributor to India’s record trade deficit, so the central bank is trying to slow them down. The confusion centred on a rule that required importers to re-export at least 20 percent of all imports, known as the 80/20 rule.
Last week, the Reserve Bank issued detailed guidelines on how the rule would work, but the complexity of the rule had prevented banks from importing immediately. Banks are the main importing agencies for gold into India. “I’ve spoken to many banks and I believe imports may start within this week. (Last week’s) circular has clarified many things for importers,” said Bachhraj Bamalwa, director of the All India Gems and Jewellery Trade Federation.
“Once the imports start, premiums will come down,” said Bamalwa, who expects premiums charged on London prices to fall to $10 an ounce from $40 on Monday. Since the rule is new, the importing agencies are taking time to get a grasp on the many operational procedures involved, including the undertaking that needs to be submitted to the customs department once the goods are delivered to an exporter for the next lot of imports.
“From operational or concept point of view the RBI circular is very clear. We would take at least a minimum of 10 days to start importing again,” said an official with foreign bank importing bullion in Mumbai.
To cut its import bill, India has tightened rules to curb gold consumption, increased import duty three times in eight months to a record 10 percent and banned imports of coins and medallions.
Analysts have said the moves may curb imports but not demand which is at heightened levels due to a fall in gold prices, and could prompt an increase in local premiums and smuggling.
BUYING FROM SINGAPORE
The higher taxes have not curbed India’s appetite for gold. India’s gold imports rose to $2.9 billion in July from $2.45 billion in June.
The imports were shipped in the first three weeks of July, according to the gems and jewellery trade body, as the 80/20 rule came into effect in the later half.
Traders have said gold is also brought into the country through unofficial means.
Dealers in Singapore said they have seen an increase in buying from Indian dealers and jewellers since last week’s hike in import duty to 10 percent, but they were not sure if it was entering India through legal means.
“We are seeing a lot of buying from Indian nationals over the counter from us,” said Brian Lan, managing director of Singapore-based dealer GoldSilver Central Pte Ltd.
Gold forms an essential part of a bride’s dowry in India and is considered auspicious as a gift or offering at religious festivals. “The more the Indian government tries to curb gold consumption, the more likely a black market will occur as there will always be a demand for gold in India,” said Lan.
Source: Bullion Bulletin