Govt’s schemes to impact little on gold imports: Industry

Deepak Kumar | The Dollar Business

The government has launched the Sovereign Gold Scheme and Gold Monetisation Scheme to curb massive gold imports. But industry leaders say that the impact would remain modest due to incomplete scheme structure. “With the announcement of these plans, the government had intended to bring down gold imports by 20-25%. But some of the points included in the schemes are incomplete, and the schemes may not be as successful as expected,” Bachhraj Bamalwa, director & ex-chairman at the All India Gems and Jewellery Trade Federation (GJF), told The Dollar Business. India is currently the world’s second largest consumer of gold, behind China. India and China account for 42% of total gold demand. In 2014-15, India’s total gold imports stood at 900 tonnes, up 36% from 665 tonnes in 2013-14. It is expecting to import 900-1,000 tonnes in this financial year. Gold imports in August 2015 went up by about 35% to 120 tonnes as against 89 tonnes in July this year. Bamalwa pointed out that these schemes could be successful if the government involves jewelers in its transaction. Due to the lack of participation, jewelers will have to be dependent on imports for their day-to-day gold transactions. “The gold so mobilised will not come to the jewelry sector. The government has encouraged consumers to deposit gold coins in banks. It has also asked buyers to purchase gold coins from the banks. This means gold will come from one consumer to another. Part of gold will be used for replenishment of RBI’s gold reserves,” Bamalwa added. Over-dependency on gold imports is one of the key reasons behind the country's widened current account deficit. In 2014-15, India’s trade deficit witnessed a marginal decline, contracting to $144.2 billion from $147.6 billion in the previous fiscal. It had climbed to a record $190 billion in 2012-13. “The government could take other initiatives such as reducing the source of gold by a certain quantity. This would encourage more retail participation,” Ketan Shroff, spokesperson of India Bullion and Jewellers Association Ltd. (IBJA), told The Dollar Business. According to the Investment Information & Credit Rating Agency (ICRA) report, India's gold imports are likely to reduce by about 5% in the next 12-18 months. The overall impact of the two schemes is likely to be "moderately positive" for the country's gold imports. The two schemes are also aimed at mobilising gold lying in households and temples and converting them into financial savings.  

September 21, 2015 | 3:44pm IST.