Indian government at gold crossroad after Gandhi letter
The Indian government is at a crossroads - while the ruling party leader asks for a relaxation in gold import curbs, the finance minster says it might be considered in February Budget.
Posted: Friday , 24 Jan 2014
MUMBAI (Mineweb) -
The ruling Congress party leader Sonia Gandhi has written to the government seeking a cut in the record import duty on gold and for easing of other restrictions. Jewellery stocks perked up in late trade on the bourses in Mumbai on January 23, with a massive surge in these counters registered in late trading.
Though the UPA chairperson urged the government, in her letter, to relax the 80:20 scheme on gold imports, which would be a boon to the exporting community, Finance Minister Chidambaram has rubbished any such move.
Speaking to a television channel from Davos, Chidambaram said that no such move would be contemplated until a firm grip could be got on the current account deficit. However, he alluded to an easing of the norms in the Union Budget presentation scheduled for end February.
India's commerce minister Anand Sharma, who is also in Davos, parroted Chidambaram. Stating that though he has not seen the letter, Sharma said the 80:20 formula has been working well. He, however, kept the doors open for a possible roll back stating that the government was open to discussion on the issue.
However, within hours of Chidambaram's statement, a come down of sorts has been noticed, with senior finance ministry officials saying the government could look at a step by step reduction in gold duty.
From 4% a year ago, duty was raised to 10% over three times, after a trade deficit of $17.19 billion in December 2012 and other factors helped drive the value of the rupee down.
The All India Gems and Jewellery Trade Federation had written to Sonia Gandhi demanding reduction in the import duty on gold to 2% from 10%, to encourage exports and curb smuggling. The Federation had also demanded a relaxation of the Reserve Bank of India rule that disallows inward shipments of gold unless 20% of the previous imports are exported.
In their letter, the Federation said the rule had reduced imports and `broken the backbone' of the industry with the short and erratic supply of gold.
Harish Soni, chairman of the Federation said the curbs had led to mass scale smuggling and reduction in the availability of official gold to jewellers.
He added that what may have prompted Sonia Gandhi to take up the issue with the government was that the Federation had highlighted how the import curbs were not just affecting trade and industry, but also the artisans.
“The gap between finished goods and raw material has narrowed. Given the lack of raw material, the local premium has shot up to dizzying heights. Ultimately, customers will have to pay unnecessarily high prices. Several artisans are unemployed too,'” he said.
The Federation has pointed out that gold and silver imports in December 2013 dipped to $1.77 billion from $5.6 billion in the same period last year, registering a fall of over 68%.
“The fall has helped narrow the trade deficit to $10.14 billion in December 2013, which is the second lowest level during the ongoing fiscal,” said Soni, adding, “There is a major crisis and chaos in the industry. The government's policies and regulations are not at all conducive to ethical practices.”
Gold demand, which has remained subdued in India due to a series of measures taken by the government, is now seeing some activity. In late trade, jewellery stocks rose across bourses. While Titan Company Limited closed the day up 3.78%, Gitanjali Gems surged 6.16%, Tribhovandas Bhimji Zaveri jumped 6.86%, while PC Jeweller's gained 4.48%.
However, Jahangir Aziz of JPMorgan told a television channel that the measures introduced by the government for gold imports were seen providing a support to the rupee till the elections. Aziz said this was not the right time to relax the 80:20 scheme, with general elections around the corner.