KOLKATA: The government’s decision to curb high gold imports as part of its exercise to check fall in rupee value and control current account deficit (CAD) may prove counterproductive, warns World Gold Council.
The Finance Ministry had suggested restrictions on gold imports after it more than doubled last month. The gold import bill stood at $3.6 billion in August 2018, up from $1.89 billion last year. Imports were at a 15-month high of 100 tonnes in August as jewellers stocked up ahead of the peak festival season.
“Given the festive season, the import will only increase. So, putting import curb makes sense to check current account deficit and also to arrest the depreciation of Indian rupee against dollar,” told a senior official from the Finance Ministry.
Currently, there is a three per cent GST on gold in addition to the import duty.
However, experts say that as the demand for the yellow metal is down eight per cent from a year ago, gold was “not at the centre of the current account deficit issue” and the move to impose curb will encourage smuggling, citing the similar move in 2013.
“Putting any curbs on gold will be counterproductive as the demand for gold has been relatively weak, particularly in the last two quarters. Even now, we are only seeing a seasonal jump in demand,” said PR Somasundaram, managing director of WGC.
On the exports front, he said that any rise in cost would hamper exports and that the industry has just started looking up after a lull in the first three months of the fiscal. In 2013, when rupee witnessed a similar fall, the government had raised import duty on gold to 10 per cent in phases and introduced an 80:20 scheme.
Under the scheme, 20 per cent of the gold imported has to be used for exports and the remaining 80 per cent for the domestic market. The scheme, however, failed and opened more smuggling routes.
He further added that regulatory measures such as the goods and services tax (GST) have put a curb on easy money chasing gold. At this juncture, hiking import duty on gold will encourage more smuggling and revive the unauthorised hawala market, defeating the government’s plan to transform the gold market.
Data from WGC showed that traffickers smuggled some 120 tonnes of gold into India last year, with nearly the same amount expected in 2018.
“This is the right time to press ahead with the already announced reforms than curbs on imports,” said Somasundaram, adding that mobilising the idle gold kept in lockers and the gold with temples under the gold monetisation scheme can pare down import bill.
(With inputs from Anuradha Shukla)