Gold measures could soon be eased in India - Analysts
Recent reports of in India have analysts questioning whether or not India's government could soon review gold import restrictions.
Posted: Monday , 16 Dec 2013
MUMBAI (MINEWEB) -
Good news is in the offing in India with the government deliberating a review of the duty structure and the restrictive measures to import gold. With the country's current account deficit shrinking to $5.2 billion, India's tough measures on gold are set to ease, according to reports.
``India's CAD is just 1.2% of gross domestic product for the quarter ended September 2013, as compared to the deficit of $21.8 billion for the quarter ended June 2013 - nearly 76% down. The reduction in CAD is attributed to curbs on gold imports coupled with a smart recovery in exports following the depreciation of the rupee,'' said Manish Kedia, bullion retailer.
He added that gold prices in the domestic spot and futures market are also likely to come under pressure as agitated investors look at the US Federal Reserve move to wind down its $85 billion a month stimulus programme.
India has been consistently increasing duty on gold to stem the CAD for the past couple of years. From 1% two years ago, duty has jumped to 10%. ``The easing of measures, especially those concerning gold imports, could be announced as early as this month end,'' an official in the finance ministry told a television channel.
Finance Minister P Chidambaram, speaking in Mumbai on December 14, reiterated that Indians should curb their thirst for gold.
However, over the weekend, the government slashed the import tariff value on gold to $398 per ten grams, while raising it marginally on silver to $643 per kilogram in line with global trends.
The import tariff value is the base price at which customs duty is determined to prevent under invoicing. The tariff value on imported gold earlier stood at $405 per 10 grams, while on silver it was $642 per kilogram.
The country imported 393.68 tonnes of the precious metal during the April-September period, ringing alarm bells at the centre. As Kedia added: ``After allowing free trade in gold which led to increased consumption and usage through savings of the precious metal, not only in the physical form but also the electronic form and trading in exchanges, the government hit the brakes when the CAD started to slip out of control. It introduced curbs which crippled the industry.''
What has helped sentiment is that from a run rate of nearly $4 billion every month in 2012, November 2013 saw imports of only $1.2 billion. Physical imports of gold crashed from a peak of 162 tonnes in May 2013 to less than 7 tonnes in November.
``The restrictions have resulted in an all round loss in revenue for the government. Apart from the direct loss in import duty and income tax, the government stands to lose on account of falling exports,'' said Puneet Mehra, bullion retailer and owner of an export house.
He added that restricting gold imports has had an impact on the exports of gold jewellery. According to the Gems and Jewellery Export Promotion Council, exports of gold jewellery slid 52.7 per cent in the first eight months of the fiscal year.
``In the six months from April 2013, gold jewellery exports fell to $3.34 billion from $8 billion in the corresponding year ago period,'' said Pankaj Parikh, Vice Chairman of the Export Promotion Council. The government was forced to either restrict gold imports or increase exports to take on the high CAD, he added.
Restricting imports, as was witnessed between April to July, resulted in gold imports practically doubling over the previous year, rendering the ban on consignment imports ``toothless. Exporters and jewellers want a continuous, assured supply of gold and no exporter should be deprived of the precious metal,'' he said.
According to economist, Subir Gokarn, the demand for gold is set to increase as households earn higher disposable incomes and have greater saving capacity. Though this does not necessarily translate into gold accumulation, because other asset classes can also be chosen, Gokarn added that gold would inevitably figure in the representative portfolio choice of investors, for financial reasons as well as for its cultural and traditional associations.