Gold to get dearer, thanks to RBI's new import norms

Published: 25th July 2013 10:05 AM  |   Last Updated: 25th July 2013 10:05 AM   |  A+A-

Gold prices are expected to witness a steady rise in the days to come, thanks to the new regulations on the import of the metal put in place by Reserve Bank of India on Monday.

The RBI’s move has elicited a mixed response from the industry, with some claiming the government is out to get them and others saying they understand there was no alternative for the government.

But trade insiders are almost unanimous in their advice to gold lovers -- buy now, because the metal is going to get costlier.

“Gold prices will definitely increase in the coming days because the new regulations mean there is going to be a fall in supply,” said the manager of a major jewellery store on the gold stretch at T Nagar’s Usman Road on Wednesday.

“We have seen the prices consolidating and beginning to rise slowly in recent weeks. This will add a spurt to the appreciation,” he added.

Another trade insider said the RBI’s new guidelines would hit business. “This will hit our margins. This will hurt our volumes. The Central government is trying to squash this industry as if it was a bed bug,” he said.

Others, however, concede there was no other recourse available to the government to curb the widening current account deficit, which rose to $87.8 billion in 2012-13 (4.8 percent of GDP), from $78.2 billion (4.2 percent of GDP) in 2011-12.

The Centre attributed this to high gold imports and low exports. Industry bodies say India imports an average of over 900 tonnes a year, while the exports stand at around 60 tonnes.

The RBI’s new guidelines say 20 per cent of all the gold imported will be held in customs-bonded warehouses, and that the next import consignment would be allowed only if 75 percent of the held gold has been exported. Industry insiders say this would inevitably lead to a severe supply crunch.

“We understand that petroleum imports are essential and cannot be curbed. Only gold import can be clamped down, as the government sees it as an unproductive asset. Under the current circumstances the government is facing, with the current account deficit, this might be the only way to ensure the rupee does not slide to 100 against the dollar,” said Sabyasachi Ray, executive director of the Gems and Jewellery Export Promotion Council.

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