Gold imports continue to be affected as importers struggle to meet the Reserve Bank of India’s mandatory norm of re-exporting 20 per cent of the precious metal brought into the country.
This, in turn, has resulted in domestic gold prices ruling seven per cent higher than global prices.
“There is huge shortfall in gold supplies currently, even as festival buying is picking up. Lack of imported consignments is pushing up prices here,” said Harmesh Arora, spokesman for the Bombay Bullion Association.
On July 22, the RBI issued a notification making it mandatory for those importing gold to re-export at least 20 per cent of the quantity imported into the country.
“Since then, hardly a couple of tonnes of gold have come into the country,” said Arora.
The RBI had come up with the re-export norm as part of the Government’s efforts to curb the rising current account deficit (CAD), which ballooned to $21.8 billion in the first quarter of the current fiscal. Gold imports are seen as a major reason for trade imbalance, resulting in CAD rising.
On Thursday, spot gold in the global market ruled at $1,318.35 for an ounce. Taking into consideration the global price (about Rs 26,000), the 10 per cent import duty (Rs 260) and other charges such as handling, the cost should be around Rs 29,000.
But in Mumbai, pure gold (99.9 per cent purity) closed at Rs 31,120 for 10 gm, a premium of over Rs 2,000.
“In fact, people are selling gold in the physical market and buying in the futures ,” said Prithviraj Kothari, Director of RiddiSiddhi Bullions Ltd. “Though prices in the domestic futures are ruling higher than global prices, they are cheaper than spot prices,” he said. On the Multi Commodity Exchange, gold contracts maturing in December ruled at Rs 29,946. “Gold in India is ruling higher only because imports have been totally hit,” said Arora.
Initially, lack of clarity and Customs authorities not being sure on implementing the norm were blamed for imports coming to a standstill. On September 20, the Commerce Department officials said that gold imports would resume as the Government would help the Customs Department in interpreting the RBI notification correctly.
“It is impossible to fulfil the norm of re-exporting 20 per cent. Banks, which buy the precious metal on our behalf, are not willing to import,” said Ba. Ramesh, Joint Managing Director of Thangamayil Jewellery Ltd.
Importers say that it will be difficult to meet the norm since re-exports accounted for hardly six per cent of total imports during the last two years.
“The problem has been compounded because Customs authorities want us to meet the stipulation for each consignment,” said Arora. The RBI notification said that fresh imports would be allowed only after an importer re-exports 20 per cent of the shipments brought into the country earlier. Banks also have to keep the gold meant for re-export in separate Customs bonded warehouses.
“It takes between 60 and 90 days for exports to take place. Until then, you can’t bring gold into the country,” said Kothari.
Currently, only gold that is meant to be re-exported is finding its way through the ports.
“Totally, imports in the last couple of months could have hardly been four tonnes,” Arora said.
During January-September this year, gold imports were a little short of 400 tonnes with the bulk coming in during April-June. Last year, gold imports totalled 860 tonnes, down from 969 tonnes in 2011.
“We don’t think that imports will rise drastically over the next couple of months due to the prohibitive policy,” said Ramesh.