India urges exports to temper gold imports
Acceding to the fact that restricting gold imports has impacted the jewellery trade, India's Finance Minister termed the under-utilisation of gold jewellery capacity an intended consequence.
Posted: Tuesday , 26 Nov 2013
MUMBAI (Mineweb) -
India's Finance Minister P Chidambaram is excited that the country is ‘on a good wicket’ with regards to exports. In what could be construed to be an open support to the gold industry, he agreed that limiting imports too much would be detrimental, since imports “are the lifeline of several industries in India”, without which they would not flourish.
At the Federation of Indian Export Organisations interactive session in Chennai on November 26, Bhaskar Bhat, managing director of jewellery retailer Titan Industries, requested the government to review the customs duty. At the current level of customs, he said, the country is witnessing a significant rise in gold smuggled in to the country.
Responding to the charge, the Finance Minister said the government would not do away with the restrictions altogether, and that it has brought out certain norms “knowing fully well the impact on the domestic jewellery makers”.
Chidambaram reiterated the ministry's stand to restrain gold imports for jewellery manufacturing for the domestic market and said the government was fully aware of the effects for the jewellery industry.
He added that the policy in constraining or restraining gold coming into India was for conversion into jewellery. “That is a deliberate policy we have taken. There is a huge amount of gold within the country. We have no problem if you buy that gold and use it for jewellery. The under-utilisation of gold jewellery capacity is an intended consequence,'” said the minister.
With regards to smugglers, he had a different view point. In its representation, Titan Industries had argued, “...the whole process is being monitored by the customs department and even though the rules were published over a month back, the actual implementation of the same on the ground was far from smooth. This has resulted in gold imports falling very sharply and consequently smuggling of gold seems to have increased considerably."
The company quoted a HDFC Securities report that estimated gold shortage to be around 83 tonnes to 135 tonnes in the second half of the financial year.
Titan Industries also urged that the government should introduce a quota system where import licences were issued to bona fide jewellery manufacturers based on audited domestic and export sales. The company also said if the government's intent is to actually curtail gold imports, they could do so without imposing schemes like the 80:20 rule, which has been the bane of the bullion industry in India.
After the presentation, Chidambaram pooh-poohed the concerns over rampant gold smuggling, stating that the government would take care of it.
Stating that the government was fully aware it would affect the gold jewellery business to some extent, he told the gathering that if gold was imported for the purpose of export, that window continued to be available and that the government was keen to enhance exports.
Exhorting traders to push exports by cashing in on the attractive exchange rate, the Finance Minister said the trade balance between April to October was $90.7 billion. Last year, the trade balance was $190 billion for the full year.
"This year we have just crossed $90 billion. That is in a period of seven months. We still have five months to go," he said at an interactive meeting organised by the Federation of Indian Exports Organisation.
He urged exporters to contain the trade deficit to about $150 billion to $155 billion. Chidambaram told the gathering that he was confident of closing the fiscal with a current account deficit (CAD) better than what was initially projected, going by the trend in the first quarter.
The minister said economic growth closer to 5.5% should be considered very satisfactory and that there was still some speculation in the forex markets.
The Current Account Deficit in India touched a historic high of 4.8% of GDP in the previous financial year.
Exporters said a slight turnaround in exports has happened due to the diversification into new markets, especially to Latin America. Not only exports, even services were doing well, all of which would ensure that the CAD would come down sharply.
Incidentally, the All India Gems and Jewellery Trade Federation has asked the government to reduce import duty to 5% and bring back the earlier letter of credit to 'rescue' the industry.
The association has written to the Finance Minister and has strongly advocated immediate reforms and other credit buying of gold. In a letter to the Finance Minister, Federation Chairman Haresh Soni said, "When the gold import is restricted under the 80:20 scheme, there is no way the import of gold is going to mount, until and unless there is a growth in overall exports."
Soni added that due to shortage of raw material, a high premium was being levied on gold imports. The unavailability of custom bonded warehouses at prominent locations within the country was also making it difficult to procure raw material, he said.
Meanwhile, gold jewellery exports have slid 6.9% in October to $608.95 million. Gold jewellery exports from April to October fell nearly 55% to $3.95 billion, the Gems and Jewellery Export Promotion Council said in a statement.