Indian government set to ease gold import curbs

Local gold and diamond retailers are welcoming reports that Indian officials are in discussions to cut a record high import duty on gold and relax rules on exports. While Indian government sources have revealed the government is looking to make such a cut this month, UAE gold and diamond jewellery retailers have said they would welcome any drop in import duty on gold prices. “If the speculation is true, and if lower import duties are implemented, it would be a welcome relief for retailers in the UAE and it would definitely discourage smuggling of gold,” said Joy Alukkas, managing director of Joyalukkas India Limited and chairman of Joyalukkas Jewellery LLC, in Dubai. The high import duty was imposed last year and though it helped narrow the country’s trade deficit, it now threatens to encourage smuggling, according to a Reuters report. The report attributed the revelations to a government source with direct knowledge of the deliberations, who did not want to be named due to the sensitivity of the issue. India imposed the curbs last year when overseas gold purchases — the country’s second most expensive import after oil — pushed its current account deficit to a record high and undermined the rupee. A final decision lies with India’s Finance Minister P Chidambaram, who has so far resisted a cut — but shifted last week to say he was in favour of continuing “some restraint” on imports. Malabar Gold and Diamonds International Operations managing director Shamlal Ahmed said it was “high time” to relook at the import rules. “High taxation is not the way to curtail imports, especially gold because it will only encourage people to find alternate ways to get this metal in the land. Consumer demand for gold is always high.  Whatever rules may be imposed people will never stop buying gold, as it is a part of tradition rather than an investment.” But more than the duty factors, he said it was the 80-20 rule, which stated 20 per cent of all gold imports into India had to be re-exported, that had affected the industry badly. “Jewellery is one of the largest industries in India, which still lies in the small and cottage industry sector helping to employ a large population of India. Keeping in mind the demand for gold in India, the only way to limit the imports is to make it available in India itself for trade and industry. It is estimated that 50,000 tonnes of gold is available in Indian households. Government and banks in India should come out with schemes to bring this gold to the surface, which can be used for circulation.” Pure Gold Jewellers CEO and MD Karim Merchant said the reduction of gold duties would have a ‘very positive impact’ on the gold business. “Many non-resident Indians would buy gold comfortably to take to India, while tourists coming from India too will prefer buying gold from Dubai rather than from India itself.” With three duty hikes last year that took duty to a record 10 per cent, and onerous restrictions tying purchases to exports, official arrivals shrank almost 90 percent in the six months to November, helping China displace India as the world’s top gold buyer. Even the governor of India’s central bank — who implemented the 80-20 rule in the first place — has suggested it may be time for change. “Once we feel more comfortable with the current account deficit, once we have a sense the tapering, at least the threat of it, is behind us, we will certainly consider unwinding some of these distortionary actions,” Raghuram Rajan stated last month. He had also said smuggling would rise if curbs on gold imports continued for too long. Indians are smuggling in more bullion than ever as buyers seek alternative sources of the metal. Between April and September, Customs officials seized nearly double the amount of illegal gold taken in the whole of 2012. The World Gold Council estimates about 150 to 200 tonnes may have been smuggled during 2013, on top of official demand of 900 tonnes. Khaleej times