Free gold import first step to capital account convertibility

The DGFT issued notification on 28 January to allow gold and silver import freely to all persons without any restriction on import through MMTC or the State Bank. The freeing up action is subject to RBI regulations, which currently limit the import to the specified agencies. (Both gold and silver are substitute currencies and their movement is historically under the Central Bankâ€™s control.) The customs duty notifications too have yet to take into account the freeing up of the import policy and extend the benefit of the Rs 100 per 10-gram duty to all persons. The measure on gold and silver is welcome with the proviso that the decision to free the precious metals of import trade control is that of the Government of India and the Reserve Bank will not continue the restriction and limit the import to public sector agencies. The other rider is that the customs should extend the standard duty of Rs 110 per 10 grams to all persons and not just the approved banks and public sector agencies. Free import of gold means that the 400 tonne gap between actual gold consumption and official gold import, which is currently met by informal export, will narrow. Gold supply for retail demand will improve to bring down the price to near international level. The premiums on inward gold movement for payments on informal exports to neighbouring countries, besides also narcotics, liquor and human trafficking, will fall. Exporters too will get relief as they can bring in gold through normal channels and get the benefits of duty drawback and DEPB without going through special channels or incur the costs of customs bonding. The four decades of harassment to goldsmiths and traders at the hands of gold control administration seem to be over. The final relief will come only when the government promises to hold the free import policy at least till the 2007 when the term of the present five-year policy ends. Gold import will reduce the pressure on the limited resources of RBI to manage the value of a $103 bn reserve largely denominated in dollar and kept with the US banks. The move is also the first step in moving towards convertibility on the capital account. According to the current policy, gold import is free and export of the imported gold is also free as long as there is no loss in the value resulting in outflow from the country. The customs too is bound to return the Rs 110 per 10 gm duty on the re-exported gold by way of duty drawback. If the RBI were to declare a new set of rules to allow free trading in gold at the national and international level, and the customs were to allow liberal bonding for trading purposes, the back of the informal gold trading will break leading to relief to the consumer and tax revenue to the government. Monetary gold, which means very high purity gold is not allowed for import. DGFT licence and RBI permission are required for import of monetary gold. Fuel import restrictions: It is unfortunate that the opening up of gold and silver is not accompanied by the opening up of essential fuels namely diesel, petrol, and now, kerosene. Fuel prices are a third higher than corresponding prices in the South Asia subcontinent even as India produces 30 percent of crude consumption, thanks to the import monopoly to Indian Oil. The Kelkar recommendations of dismantling of controls on the fuel sector have been shelved to continue the looting of the consumer in the name of â€œpublic interestâ€�. Even the policy to allow duty free imports to exporters against DFRC licence does not mean much as fuel is rarely specified as an import item entitled to duty free imports for export production. The DGFT too does not allow fuel in ad hoc licences. DEPB: The DEPB rates are expected to fall sharply in the immediate future, followed the device of the four percent Special Additional Duty (SAD) in the recent budget along with reduction of five percent in the basic duty of customs. The DEPB premium has fallen drastically the licence is too traded at 92 percent of the licence face value. The situation may change with the fall in the entitlement percentage and consequent reduction in supply. Freeing up of gold import means that gold duty can now be paid against DEPB and will further boost demand. Exporters see this as the silver lining in the dark clouds of the rising rupee. Quality control: The DGFT has quietly changed the rigid BIS standard policy, which required a BIS licence by the foreign manufacturer for import eligibility. Established importers can now bring in the BIS notified goods and get BIS certification before putting the goods to the market. The foreign manufacturer does not enter the picture in the new dispensation. The change in the old 24 November 2000 policy for BIS licence is good news for importers and exporters. It follows the removal of BIS licence on steel. Academy of Business Studies

Free gold import first step to capital account convertibility

The DGFT issued notification on 28 January to allow gold and silver import freely to all persons without any restriction on import through MMTC or the State Bank.

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