RBI tightens gold import to help restrict speculation

MUMBAI: The Reserve Bank of India on Friday further tightened the screws on gold import, restricting banks to import bullion on a consignment basis only to meet genuine needs of exporters of gold jewellery. “The three sources of demand for gold are consumption, investment and speculative,” said RBI governor D Subbarao.

“If prices come down, consumption demand might go up but investment and speculative demand might moderate. RBI is concerned because of the current account deficit management, financial stability management and larger consumer protection. One measure in this policy is prohibiting banks from importing gold on consignment basis unless it is meant for export.” The import of gold has been above 1000 tonnes in the past two years. In 2011-12, India imported 1,064 tonnes of gold and 1,015 tonnes in 2012-13.

But the level of import in the precrisis years was 700 tonnes. “In the interest of the economy, we need to curtail speculative transactions on gold,” said KR Kamath, chairman Punjab National Bank. “The import of gold will be restricted only for re-export, not for other purposes.”

High gold import has been the reason for the widening current account deficit, which has risen to a historical high of 6.7% of GDP in the third quarter of 2012-13. “If you see gold demand, consumption demand has not moved up,” said Aditya Puri MD and CEO of HDFC Bank.

“So, RBI wants banks to be very careful about what they are doing so that they are not accused of funding gold or propelling its prices.” The central bank also restricted banks from lending against gold coins up to a maximum weight of 50 grams. Currently, banks are allowed to lend against gold ornament s and gold coins sold by banks.

Earlier, the central bank had barred banks from lending for the purchase of gold in any form, including primary gold, gold bullion, gold jewellery, gold coins, units of gold exchange traded funds and units of gold mutual funds. A committee headed by KUB Rao had recommended steps aligning gold import with the rest of imports to reduce import of the precious metal. Earlier in January 2013, the government had increased customs duty on gold to curb demand.