India mulls easing of gold import restrictions

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India may review its gold import duty structure and ease the tight curbs on import of gold, following dramatic improvement in the country’s Current Account Deficit (CAD) situation and the alarming rise in gold smuggling acts. According to Finance Ministry officials, the Indian government may announce the revised duty structure and gold import policies by this month’s end.
To contain rising gold imports, the customs duty on gold imports were hiked thrice during the year from 4% at the start of the year to 10%. The Indian government and the RBI had linked the imports of gold to its exports. Nominated banks, agencies and entities were directed to ensure that one-fifth of every lot of imported gold into the country is exclusively made available for export purpose and the balance 80% may only be utilized for domestic use. The government had also banned gold trade in SEZs.
The restrictions on gold certainly helped to curb imports. The gold and silver imports by the country during the first eight months of the fiscal plummeted almost 24% from $33.5 billion a year earlier to $25.5 billion this year. The imports dropped to all-time low of $1.2 billion in November. Quarter-on-quarter, the CAD crash-dived by over 76% to $5.2 billion (1.2% of GDP) during the second quarter (July to September) when compared with the Q1 CAD of $21.8 billion (4.9% of GDP).
On the other hand, there have been unintended consequences too. Flow of illegal gold into the country spiked up. The quantity of gold seized from smugglers almost doubled during the initial ten months of the year from Rs.107 crores last year to Rs.208 crores this year. The overall decline in official gold imports has hurt the gems and jewellery industry in the country.
According to Finance Ministry officials, the Indian government is keen to unroll the restrictions on gold imports. The economist community expects a moderate reduction in gold import duty before this month end. The controversial 80:20 scheme may also be reviewed. However, the government may continue with the measures to discourage investment in gold.
Source:Bullion Bulletin

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