RBI restricts gold imports by banks to ease pressure on CAD

Our Bureau Updated - May 13, 2013 at 09:44 PM.

The current account deficit, which is a key indicator of a country’s external vulnerability, arises when a country’s total imports of goods, services and transfers is greater than exports. 

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To moderate the demand for gold for domestic use, the Reserve Bank of India has decided to restrict the import of gold on consignment basis by banks only to meet the genuine needs of exporters of gold jewellery.

This restriction, which has come into force with immediate effect, has been imposed in the backdrop of rising gold imports exerting pressure on India’s current account deficit.

The RBI curb also comes on a day when government trade data showed that gold imports jumped by 138 per cent to $7.5 billion in April, highest so far this year, pushing up the trade deficit to $17.7 billion. This is likely to worsen the current account deficit (CAD) this fiscal.

Consignment basis

In the transaction involving import of gold on consignment basis, the ownership of the gold remains with the overseas supplier and the Indian importer acts as the former’s agent. The Indian bank remits the cost of import as and when the sale takes place.

The CAD, which is a key indicator of a country’s external vulnerability, arises when a country’s total imports of goods, services and transfers’ is greater than exports. 

A widening CAD usually exerts downward pressure on the domestic currency, making imports costly.

This is a cause for concern for the Government as costly crude oil imports have inflationary impact.

The current account deficit reading came in at an all-time high of 6.7 per cent of GDP in October-December period of 2012-13.

The restriction on the import of gold on consignment basis by banks comes as the RBI’s Working Group on Gold had recommended aligning gold import regulations with rest of the imports for creating a level-playing field between gold imports and other imports.

Bulk of the gold imported by nominated banks is on consignment basis whereby the banks concerned do not have to fund these stocks, said the RBI in a notification. 

ramkumar.k@thehindu.co.in

Published on May 13, 2013 16:14