Gold import restrictions likely to spur smuggling

The Dollar Business Bureau | @TheDollarBiz  

India's gold imports in FY2013-14 have declined about 34% from previous year

  India’s Finance minister Arun Jaitley says that the duty on gold imports is unlikely to change until the current account deficit (CAD) improves further, which means that prices and smuggling of gold could rise sharply this year. Last year, the government increased the customs duty on gold to 10% to contain the current account deficit (CAD) which stood at around $88 billion or 4.7% of Gross Domestic Product (GDP) in FY2012-13. The trade balance improved during FY2013-14 and CAD declined to around $32.4 billion or 1.7% of GDP during 2013-14. High duties and other measures such as the 80:20 (export-import) rule helped India’s gold imports to decline sharply. According to the Ministry of Commerce, gold imports by India dropped to around 670.4 tonnes in FY2013-14, down about 34% from around 1,013.9 tonnes in the previous year. However, the government continued with the 10% duty on gold imports in the Union Budget 2014-15 and the Finance Minister now says that such measures will continue, especially after the 65% hike in gold imports in the first week of June 2014 (compared to June 2013) which took place due to six-month low international gold prices. However, industry representatives are upset and say that import restrictions on gold may lead to low inventories and high domestic prices this year. Earlier, Vipul Shah, Chairman, Gem & Jewellery Export Promotion Council (GJEPC), told The Dollar Business that India’s Jewellery sector is largely disappointed with the government and warned that gold import restrictions will spur smuggling of gold. While data on actual smuggled imports of gold is unavailable, the Commerce Ministry says that smuggled gold held by India’s Customs and other authorities has increased almost eight times in the three years, from 153.26 kilograms in 2011 to 1,267.26 kilograms in 2013.