Gold import curbs may raise jewellery prices

Union finance minister P Chidambaram can afford to smile now. Gold imports in the second half of this year are likely to come down to 350 tonne if one goes by the 20-80 principle worked out by the Reserve Bank of India in its circular issued on Monday evening.

The apex bank has asked nominated banks and agencies to ensure that at least one fifth of the every lot of gold imported — in any form or purity — is exclusively made available for the purpose of exports. They have been asked to sell gold for domestic use to entities engaged in jewellery business or bullion dealers supplying gold to jewellers.

Further, these banks and agencies will be required to retain 20% of the imported quantity of gold in the custom department’s bonded warehouses. Fresh imports will be permitted only after the export of at least 75% of the retained quantity that lies in the custom’s bonded warehouse.

Although this measure is likely to provide a big relief to the UPA government battling a wide current account deficit blamed mostly on huge gold imports, jewellers say it will be difficult for them to procure the metal to meet the festival season demand that kicks off from September. There is also an apprehension that premiums will go up which may subsequently pinch the pockets of Indian consumers.

“In 2012, the country exported 70 tonne of value-added gold. If the country is able to export similar volumes of gold this year, according to RBI’s new circular, imports will not go beyond 350 tonne in the remaining period of this year,” Haresh Soni, chairman, All India Gem & Jewellery Trade Federation. Incidentally, the country imported 864 tonne of the metal to meet domestic demand in the previous year. “This year, it will be much less. But right now it is difficult to guess an exact figure,” Soni added.

“This sort of RBI stricture will push up premiums in the market. Premiums have already gone up toRs340 per 10 gm (at the rate of $20 per ounce) and during the ensuing festival season they will go up toRs600 per 10 gm, making the metal costlier in the domestic market. Moreover, availability will be a major concern for jewellers,” said Suresh Hundia, former president, Bombay Bullion Association (BBA). International gold price on Tuesday hovered around $1,327 per ounce. On the MCX, the metal traded at Rs27,550 per 10 gm for the August contract.
Industry sources say that although the government is trying to beef up exports to address the current account deficit, global markets are not in a position to import huge volumes of gold jewellery. “The main export markets are the US, Europe and West Asia. The US market has not recovered fully and Europe is still reeling under a financial crisis,” said Hundia. During 2012-13, CAD hit a record high of 4.7% of GDP or $88 billion. Rajeev Sheth, chairman and managing director of Tara Jewels, a jewellery export firm, said market dynamics will be interesting because the measure will definitely affect the sale of bullion and players with a large gold inventory.