The Indian government, that was reportedly considering doing away with the controversial 80:20 scheme for gold imports, has instead strengthened it.
RBI Tightens Gold Import Norms
In a notification, the Reserve Bank of India (RBI) has said nominated banks and agencies would not be allowed to import the precious metal in excess of their entitlements in the first or second lot under the 80:20 scheme.
The new rule from the RBI said, “Import of gold in the third lot onwards will be lesser of the two; five times the export; for which proof has been submitted or quantity of gold permitted to a nominated agency in the first or second lot.”
RBI Move Stumps Jewelry Industry And Gold Bullion Retailers
With gold jewelry exports continuing to dive in January, the tenth consecutive monthly fall, with exports slipping 23%, the RBI’s latest notification has stumped retailers.
“We were looking forward to some relaxation on the 80:20 rule, which we were promised was in the works by government officials. We have been told that there would be a partial relaxation on the restrictions to import gold and in a manner that would cut down on the surge in smuggling. These new norms are more stifling,” said Bachubhai Zaveri, bullion trader at Mumbai’s Zaveri Bazaar.
He added that over the past three weeks, jewellery traders and exporters have seen a fall in the supply of gold, which had led to massive shortfalls in the gold jewelry fabrication segment. The fall, he said, resulted from a delay by the Directorate General of Foreign Trade in clearing gold procurement requests.
Moreover, nominated agencies have also reportedly deferred supply to bulk consumers amidst expectations of a rationalization in the gold import duty.
With jewelry demand in India up by 11% last year, at 612.7 tonnes as compared to 552 tonnes in 2012, as detailed by the World Gold Council on February 18, the government’s many curbs do not seem to have curbed the appetite for the precious metal.
Exporters woes
Under the 80:20 scheme in India, the government had in August 14, 2013, allowed nominated agencies to import gold on the condition that 20% of the inward shipment would be exported. The permission to import the next lot would be given on fulfilment of the export obligation.
Following the representation received by the RBI and the Finance Ministry, the apex bank has said that the quantum of the third lot import would be five times the export from the previous lot, subject to the condition that it would not exceed the previous entitlements.
In case of advance authorization and duty free authorization for gold import issued before August 14, 2013, the RBI has said the 80:20 rule would not apply for units in special economic zones, export oriented units, premier and star trading houses.
In other words, the curbs have been tightened to ensure that gold is brought into the country only to fabricate into jewelry and export. Export processing units have managed to have their queries answered, said traders.
However, the move has ensured that the local jewelers have not yet found a remedy for their woes.
“Despite showing proof of jewelry exports, authorities have been holding on to the requests of jewelry manufacturers for several weeks at a time. For the last three weeks, there was virtually no supply of gold to jewelry exporters, it has been a dry spell for many,” said Pankaj Parekh of the Gems and Jewelry Export Promotion Council.
He added that gold imports had officially slipped to 19 tonnes in November last year, though it had climbed to 40 tonnes in January 2014.
Exports of gold jewelry have dropped for the tenth consecutive month, and it looks like it will continue since the government continues to ignore our pleas, added Parekh.
Gold jewelry exports from April to January fell 49.5% to $5.5 billion. January imports dropped 32.8% from a year ago to $482.2 million.
Other members pointed out that they had been discriminated against, since their fervent pleas to reduce the high import duty on gold had not even been acknowledged in the interim budget.
“The entire gems and jewelry industry is deeply disappointed and shocked at the insensitive treatment meted out to it by the government,” said Haresh Soni, Chairman of the All India Gems and Jewelry Trade Federation. “The government seems to be insensitive to the plight of millions of families of goldsmiths and craftsmen, who are suffering due to lack of jobs and are trying to survive in a situation that is threatening their very livelihood,” he added.
He added that excise duty relief had been granted to luxury items such as large and mid sized cars under the pretext that the automobile industry is registering negative growth in India, but the same courtesy was not extended to the gems and gold jewelry industry, which has been facing several quarters of degrowth.