The Telegraph
Thursday , March 20 , 2014
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Move to loosen grip on gold

Mumbai, March 19: The Reserve Bank of India is understood to have permitted five private banks to import gold.

The banks are HDFC Bank, Axis Bank, Kotak Mahindra Bank, IndusInd Bank and Yes Bank, Reuters said quoting sources.

The move is widely seen as a first step towards relaxing restrictions on gold imports that were clamped about 15 months ago to check the surge in the country’s current account deficit (CAD).

The development could not be confirmed with the banks. Spokespersons for two banks said they were unaware of the decision.

The pressure to relax the curbs on gold imports has mounted ever since finance minister P. Chidambaram announced in his interim budget speech that CAD would be contained at less than $45 billion this year.

Last year, CAD had surged to an unprecedented $88.2 billion, forcing the government to frantically raise import duties to quell imports. The import duty on gold has been raised to 10 per cent from 2 per cent in early 2012. The restrictions were further tightened when the rupee started tumbling against the dollar before plunging to a historic low of 68.85 in August last year.

Earlier, in July that year, the RBI imposed quantitative restrictions when it stipulated that at least 20 per cent of the gold imported should be exported.

Imports by jewellers and other agencies were capped at the average of the past three years.

The central bank also said such imports would be linked to financing of exporters by the nominated agencies.

The nominated agencies — a few nationalised banks and others such as State Trading Corporation — were also told that they would have to provide gold in any form for domestic use only to those entities engaged in the jewellery business or bullion dealers supplying gold to jewellers.

Jewellers have been railing against the high import duties and the proviso that requires them to export 20 per cent of all the gold they import. In January, UPA chairperson Sonia Gandhi asked the government to consider taking appropriate action after her office received a petition from the All India Gems and Jewellery Trade Federation clamouring for a reduction in the import duties and other quantitative restrictions.

It is now learnt that the RBI has removed the three-year proviso.

Analysts said that if the RBI allowed more banks to import the yellow metal, it would not only improve its availability but also bring down the premium between domestic prices and the international spot price.

The spread between the price of gold in India and the average global rates rose from around Rs 100 per 10 gm in December 2011 to around Rs 1,800 per 10 gm in December 2012. It spurted after that peaking at around Rs 5,700 per 10 gm (see chart), which is spurring gold smuggling into the country.

India’s CAD — which is the difference between inflows and outflows of foreign capital that encapsulates trade in goods and services as well as movement of capital — fell to a four-year low at $4.2 billion in the third quarter ended December 31, or 0.9 per cent of the gross domestic product. It was down from $5.2 billion, or 1.2 per cent of India’s GDP, in the second quarter.

CAD stood at $31.9 billion, translating to 6.5 per cent of India’s GDP, during the third quarter of 2012-13.

The World Gold Council (WGC) recently estimated that around 200 tonnes of gold had entered India through the unofficial route in 2013.