Mumbai: The Reserve Bank of India (RBI) on Monday further tightened rules on the import of gold to ease the pressure on the widening current account deficit and prevent speculation in the domestic market.
Banks and entities that import gold will now have to ensure that at least one-fifth of the metal they bring in is used for exports.
Further, gold imported in any form can only be made available for domestic use to make jewellery, RBI said in a statement on Monday. These measures follow earlier steps taken by the apex bank to curb imports of the yellow metal.
Importers are required to retain 20% of the imported quantity in customs bonded warehouses and will be permitted to undertake fresh imports only after 75% of the metal stock is exported, RBI said. The new rules take immediate effect.
This is the second time in less than three months that RBI is tightening its grip on gold imports to rein in the widening current account deficit, which touched a record 4.7% of gross domestic product in the third quarter of the year ended 31 March.
According to the World Gold Council, India is the largest importer of the metal, with more than half of this being used to make wedding ornaments. In the 12 months ended December, total gold demand in India was 864.2 tonnes, down 12% from 986.3 tonnes a year earlier, according to the council.
Gold imports in June are estimated to have fallen to around 31 tonnes, down from 162 tonnes in May and 141 tonnes in April, according to a 16 July report by the Press Trust of India. Imports stood at around 830 tonnes in 2012-13. In value terms, gold and silver imports are estimated to have declined substantially to $2.45 billion in June from $8.39 billion in May, the report said.
India’s central bank took the first big step to curb gold imports in May. It restricted banks to imports on a consignment basis only to meet the needs of exporters of gold jewellery, thus limiting the supply of the metal through this channel for domestic use. The central bank also restricted loans against gold coins to those weighing up to 50gm per customer.
Monday’s steps will not have any additional impact in the domestic market as gold is available through alternative channels, experts said.
“There will not be any major effect on the industry except the fact that consumers may need to pay a bit more,” said T. Gnanasekar, director of Mumbai-based commodity and forex research firm Commtrendz Research and Fund Management. “However, these steps will help the government to reduce the current account deficit.”
P.V. Jose, chief patron of the Kerala Jewellery Manufacturers’ Association, said RBI’s steps on gold imports have crippled the domestic jewellery market.
“Government measures have totally spoilt the gold industry in the country. Our margin requirements have shot up, premiums have increased, and there is no easy availability of gold to do business,” Jose said. Kerala is one of the largest consumers of gold among Indian states.
“Government’s deficit, etc., is not only for gold. But the way government is taking measures, (it is) as if gold is the only thing liable for its problems. We must understand that gold is not a luxury, but is the only asset of a person having average earnings. This is the only way they save,” Jose said.
India’s policymakers have been trying to curb the import of gold, which is a major contributor to non-oil imports. Early this year, a central bank panel had recommended that RBI consider introducing gold accumulation plans, gold-linked accounts, modified gold deposits and gold pension products, among other measures.
The panel, headed by K.U.B. Rao, an adviser to RBI’s department of economic and policy research, also proposed that banks expand their gold jewellery loan portfolio to monetize stocks of idle gold in the country, as well as avoiding any curbs on loans against gold jewellery and gold coins to individuals. RBI is currently examining these recommendations.
To discourage gold imports, the government raised the import duty on gold in phases from 2% to 8%. Last week, finance minister P. Chidambaram had ruled out a complete ban on gold imports, but urged Indians to moderate their demand for the metal.