Gold prices to fall as QRs go

NEW DELHI: Prices of gold and jewellery may well slide if global prices are not unduly volatile in the near term as the government today opened up the import window and fully dispensed with quantitative restrictions. The latest dose of liberalisation comes six years after the government authorised designated agencies to import gold and silver.
Jewellers and exporters sourcing supplies from canalising agencies will no longer have to fork out commission to these agencies in case they opt to import gold directly. They will only be required to pay customs duty.
State-owned Punjab National Bank, which is authorised to import gold, for instance, charges a commission of 0.10% on a consignment basis. The gold loan business works on spreads of 1% to 1.5% and outright sales works on even thinner spreads of 0.05% to 0.1%.
The decision to remove quantitative restrictions (QRs) comes on the back of representations made by the World Gold Council and jewellery exporters outside EOUs and SEZs. Units in EOUs and SEZs are in any case allowed free import of gold.
Gold imports are also allowed under baggage rules. A passenger coming into the country after a minimum stay of six months abroad is entitled to bring 10 kgs of gold and 100 kgs of silver. The duty has to be paid in convertible foreign currency. There are no changes in these rules as of now.

Rationalisation of policy on import of gold has been on the radar screen of policy makers including the RBI Governor Y V Reddy. Reddy, had during his tenure as Deputy Governor, made out a strong case for a further rationalisation of policy relating to gold imports.
The lowering of customs duty coupled with the drying up of the hawala channel has bolstered the government’s case to remove QRs. In the 2003-04 budget, import duty on gold bars and gold coins was lowered from Rs 250 to Rs 100 per 10 grammes. The reduced rate on Rs 100, however, does not apply to tola bars.
In 1997, the government authorised three canalising agencies — MMTC, STC and HHEC — and eight banks including SBI and Bank of Nova Scotia to import gold and silver for sale in the domestic market. Bank of Nova Scotia is reckoned to be at the top of the heap in total gold imports with a market share of close to 25% . Other players include HSBC with a share of close to 13%, SBI and ICICI Bank. Gold loan business works on spreads of 1 to 1.5% and outright sales works on even thinner spreads of 0.05% to 0.1%.