Some bullion traders misusing government scheme

MUMBAI: The 1-1.5% discount that local gold has been trading at to the landed price is inducing some from the bullion trade to misuse the government’s duty free replenishment certificate ( DFRC) scheme. The discount has been caused by a fall in demand and jump in import of smuggled gold.

The DFRC allows an exporter to import a duty-free consignment of bullion for domestic tariff area within 90 days of export of jewellery or medallions manufactured from locally sourced gold. Some exporters manage to source this gold at a discount. This enables the exporter to import gold without paying duty and sell it when the discount slips below 1%, gaining significantly.

Here’s how. The exporter first gains by being able to source gold locally at a discount for export of medallions or jewellery from an SEZ or EOU. It benefits again by being able to import gold against the export under DFRC without paying 10% customs duty. The firm imports the duty free gold for the domestic tariff area, when the disparity in the local market narrows. When it sells jewellery manufactured locally from the import-free consignment, it is at market rate. That enables the exporter to notch up significant margins.

“There has been an increased interest to claim a DFRC for importing duty free gold at a later date (within 90 days from period of export),” says Sudheesh Nambiath, lead analyst at precious metals consultancy GFMS. “This has, in turn, delivered a surge in exports from Special Economic Zones and Export Oriented Units, based in Cochin, Bengaluru, Noida and Surat, by sourcing gold from the domestic market that is available at a discounted rate.” Nambiath adds that in volume terms an estimated 42 tonnes equivalent of gold has been exported in the last two months.