India’s neighbour Pakistan has decided to temporarily ban the import of gold for one month, to save its foreign currency reserves and to curtail the rampant smuggling going on in the nation.
On Wednesday, July 31, Pakistan imposed a temporary ban on the import of gold.
Following the Indian government’s decision to discourage gold import by imposing 8% duties, buyers have reportedly shifted to Pakistan where the precious metal is allowed to be imported duty free since 2001.
An official handout by Pakistan’s Economic Coordination Committee (ECC) of the Cabinet, headed by Finance Minister Ishaq Dar, has noted that there have been serious apprehensions that the duty free import of gold is being abused by unscrupulous elements. Instead of being used for its intended purpose, gold is being smuggled to India, said the note, circulated to the press on Wednesday.
Gold imports jumped by 102% in 2012-13 in Pakistan. According to data by the Pakistan Bureau of Statistics, 6,745 kilo of gold worth $346.255 million was imported in 2012-13, as compared to the import of 3,267 kg valued at $171.674 million during 2011-12.
On a month-on-month basis, gold imports in June 2013 registered an increase of 176.17% as compared to the imports in June 2012. Gold imports in June 2013 stood at $40.252 million against imports of $14.575 million in June 2012.
With most of the gold smuggled to India, the Pakistan authorities have decided to suspend imports for a month, given the rampant misuse of duty-free import of gold scheme.
The ECC was also told that the Indian government has consistently engaged in discouraging gold imports. The seizure of smuggled gold increased by as much as 365% in April-June 2013 in India, as compared to the same period of 2012, the ECC was told.
This difference in import duties appears to have provided the incentive for increased duty-free imports in Pakistan and smuggling to India.
The Pakistan government had earlier taken the initiative to diversify exports and to promote the export of value-added gold jewellery. The government also floated special schemes to facilitate jewellery exporters, whereby they are able to import gold without payment of any duty on the condition that the gold is re-exported after converting to value-added jewellery.
High gold imports between January to June 2013 to Rs 92.97 billion, from Rs 19.13 billion in the corresponding period of the previous year, has rung the alarm bells.
Incidentally, India has also taken a decision to choke gold imports below 845 tonnes. The government is also deliberating more norms to counter the gap in its current account deficit, despite the fact that India imported just 45 tonnes between July 1 and July 25.
India’s Finance Minister P Chidambaram has said the country will do whatever it can to restrict gold imports to below 845 tonnes this year.
Given the wide scale confusion over gold import norms, the Reserve Bank of India has also said it would clarify on some of the norms early next week.
Retailers said they were upset over the import restrictions on gold and have decided to “go-slow”.
“The RBI has taken away the credit facility on gold imports. It has also mandated that jewellers and traders pay cash upfront for gold imports. This has caused much consternation among the bullion community,” said Harpreet Monaji, gold retailer.
He added that earlier, gold jewellers were enjoying a 90 to 180 day credit facility on the import consignment, but were now forced to pay cash upfront for purchases with the new norms. “While most have to borrow money from the market at higher rates of interest, it has brought a lot of pressure on their working capital and margins,” he added.