Commerce and Industry Minister Nirmala Sitharaman has pitched for ‘restriction free’ imports of gold to help gems and jewellery exports and also discourage smuggling.
While restrictions on gold imports can be justified on the grounds of maintaining the balance of payments (BoP), one has to be mindful of the fact that such barriers encourage smuggling, she said.
The minister further said that custom authorities have confiscated a huge haul of smuggled gold in places like Delhi, Kochi and Chennai.
“So while from BoP point of view, it is nice, but restrictions are also leading to these kinds of channels which are unwanted and undesirable,” Sitharaman told PTI.
“Ideally, I would like to see it free of restrictions,” she added.
The imported gold is mainly used by gems and jewellery exporters and people usually consider investment in the precious metal as safe haven.
The minister said gold is consumed used as a raw material by handicrafts and gems and jewellery exporters as these are segments give high-value returns.
She further said the ministry last year had recommended to cut import duty on gold, but “given the situation then, I think nothing moved in our favour”. “But now I think, it is a question of economy where fresh look is being given to everything, we will make our presentation, we will see what the finance minister would want to do,” she said.
Outbound shipments of gems and jewellery, which accounts for about 13 per cent in the country’s total exports, in October rose by 22 per cent to USD 4.38 billion.
Arresting the eight-month fall, gold imports more than doubled to USD 3.5 billion in October. The imports had stood at USD 1.67 billion in October last year.
The country’s total official gold imports declined to 60 tonnes in April-July of this fiscal, much lower than 250 tonnes in the year-ago period.
India, the world’s second biggest gold consumer after China, imported 650 tonnes in 2015-16.
Gems and jewellery sector had in July urged Prime Minister Narendra Modi to reduce gold import duty to 5 per cent from the current 10 per cent to check shift of business to neighbouring countries.
In 2013, the government increased the import duty to 10 per cent with an aim to discourage the imports and contain current account deficit (CAD).
The scenario is being played out across India, the world’s second biggest consumer of gold, where it is customary to gift jewellery in marriages. The wedding season stretches from September to April, and Thomson Reuters-owned metals consultancy GFMS says it accounts for more than half of the country’s annual demand for gold.
More than two-thirds of that demand of around 800 tonnes a year comes from the countryside, where farmers are struggling to get enough cash to buy seeds and fertilisers in the sowing season. Penetration of credit or debit cards and money apps is very low in rural India.
The resulting drop in incomes and tepid buying in the wedding season means gold imports, which spiked in the immediate aftermath of the banknote announcement amid panic buying, are likely to drop sharply in the coming months, said traders in India and in the supply hubs of Dubai and Hong Kong.
“Instead of shopping, we were busy visiting banks and government offices to prove that there is a wedding in the family,” said Rahul Ahire, a cousin of Zhalte.
The Indian government has put strict limits on the amount of money people can withdraw from banks, although a larger sum, 250,000 rupees ($3,600), is allowed for weddings, as long as participants can prove that the marriage is genuine.
Gold demand from India is not a major factor in global prices, but has historically provided support when the international market is falling.Gold is trading at its lowest levels in nearly 10 months in anticipation of a U.S. interest rate hike in December. Higher U.S. rates would boost the dollar and increase the opportunity cost of holding the metal.