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Economy

RBI Further Tightens Gold Imports: Now 20% of all Consignments have to be Exported

India will continue to import Gold no matter what, it seems. The RBI has gone ballistic over gold imports, creating further barriers to the process. In a circular today, it states:

  • All importing agencies and banks must retain 20% of the gold imported for further export.
  • The rest can only be sold to jewellery companies or to bullion suppliers to jewellery companies. (That means, I think, that no non-jeweller can import gold. What happens to ETFs?)
  • For each imported consignment, the 20% export norm must be followed – and at least 3/4th of what’s in the export bonded warehouse must be exported before a further lot of gold is allowed for imports.
  • This is with immediate effect.

The example they’ve given is like this:

An example of the working of the scheme:

  1. Nominated agency ABC imports say 100 kg of gold in any form/purity.

  2. Out of the above import of 100 kg, 20 kg gold held in the bonded warehouse can be got released in part or full to be sold to exporters of gold against undertaking to customs authorities as is the practice now.

  3. Any further import of gold by ABC shall be permitted by the customs authorities only to the extent of actual export out of 20 kg of gold held in bonded warehouse. This can happen only after at least 15 kg of gold out of 20 kg is actually exported from the previous lot.

  4. If ABC wants to place order for the second lot of import, only 75 kg of import (including 15 kg for exports) will be permitted which will again follow the procedure outlined above. At this stage, total gold with the bonded warehouse meant for the exporter will be (5 + 15) i.e. 20 kg. Out of this at least 15 kg (i.e. 75% of the above 20 kgs) will have to be actually exported to enable ABC to import again. This procedure will be followed for every lot of import.

  5. If for any reason, ABC is not able to channelize the gold held in bonded warehouse for exports, no further imports can be undertaken by ABC who will also arrange for re export of the gold in the bonded warehouse.

This will basically increase smuggling, nothing else. In fact, Gold is up 2% anyhow (on global cues, where gold is up 3.2%).

We are now heading towards:

a) banning of trading of gold

b) sequestering all gold in the market (the US did this once in the 30s).

I hope we don’t go there. It would be a signal that the RBI and government will stoop to any level to prevent you from buying what seems to be a pretty good hedge against the inflation we’re seeing. The only positive? The RBI is quite serious about cutting down rupee liquidity, and this will hopefully mean breaking the back of inflation over the next two years. Anything short of that will not reduce the attractiveness of gold, sorry.