Compressed demand for gold and other imports, a tempered demand for oil and an improvement in exports has put the smile back on the face of the Indian government. With the government happy and relatively unfazed at the spurt in gold imports in October, traders are expecting a roll back of certain norms related to gold imports. “All the signs appear to be looking good. The inward shipment of the precious metal has been severely compressed in the current fiscal. Forex reserves are rising. The announcement to ease some of the restrictive norms should be out soon,’ confirmed an official of the All India Bullion and Jewellers Association.
As a first step, the Indian government and the Reserve Bank of India (RBI) are said to be looking at easing the 80:20 rule with regards to gold imports. The rule requires importers of the commodity to supply at least 20% of their imports to exporters.
“The 80:20 rule for gold imports has been a major hurdle since importers of the precious commodity have to show proof of export for every lot. Most times, a consequence of this is that consignments get held up at customs warehouses,” said Sanjeev Mehta of the Bombay Bullion Association.
He added: We have made several representations to the government to relax some of the gold import rules so as to ensure that jewellers are not in a bind anymore and can ensure adequate supplies for the marriage season ahead.” On July 22 this year, the RBI made it public that a fifth of all gold purchases by importers would need to be exclusively made available to exporters. It had further directed that only 80% of the gold imported could be used for domestic purposes, and that too only by entities engaged in the jewellery business, bullion dealers and banks.
Traders and jewellers had argued that the rule was placing a lot of pressure on them, forcing them to export at any given price, with an aim to recover the loss on the domestic front. For the last several months representations to the various ministries have notably featured complaints of the 80:20 rule. Even as retailers and jewellers complained about the prohibitive rule at a recent meeting in New Delhi, senior officials in the finance ministry told a section of traders that the government could be considering a proposal whereby importers can declare their imports less frequently, say on an annual basis, rather than with each consignment.
The move would immediately help traders get better bang for their buck, with most able to gain a good price for their gold jewellery exports. In a related incident, India’s Finance Minister P Chidambaram has also expressed delight at lower gold imports. Though imports rose to 23.5 tons in October from 11.164 tons in September, Chidambaram said he was not worried about the increase, and that he would be comfortable if gold imports continued to remain at about 20 tons a month.
Lower gold imports would be a very good sign for India’s high current account deficit (CAD), he told media persons in the Capital on Thursday. Gold imports in July and August stood at 47.75 tons and 3.38 tons respectively. In the 2012-13 fiscal, India’s gold imports stood at 845 tons. Chidambaram said with the decline in gold imports and improvement in exports, the CAD in the current fiscal would be contained at $60 billion, way lower than the $88.2 billion in 2012-13. The current account deficit jumped to a record high of 4.8% of GDP last fiscal.