'Higher gold duty spurs illegal imports'

'Higher gold duty spurs illegal imports'

The import duty on gold has risen gradually from 1 per cent in January 2012 to 8 per cent in June 2013. This has encouraged illegal imports of gold about which the government has not been concerned, said The All India Gems and Jewellery Trade Federation (GJF), a nodal body for gems and jewellery trade on Friday.

“RBI has issued circulars and notifications stating that import of gold will only be permitted against 100 per cent cash margins and no gold on consignment basis will be permitted. This affects the raw material gold used for manufacturing jewellery and has paralysed the industry and put artisans out of jobs. Manufacturers are also running the risk of going out of business as there will be no gold available in the market,” the federation said in a statement.

Banks have now been instructed to either totally stop or restrict supply of gold. “There is huge dearth of gold in the market which has developed premiums on gold rates. The government has pushed the industry back to the times when raw material supplies were controlled by smugglers and the mafia,” the federation alleged.

It is estimated that Indians hold close to 25,000 tonnes of gold currently, and at the current gold price, this represents $1.25 trillion in value terms. By the end of fiscal 2013, India is expected to become a $2-trillion economy. “The gold stock represents over 50 per cent of the economy. One can view the $1.25-trillion value of physical gold as dormant savings of the economy which have not been put to productive use towards investment and capital formation. If even 10 per cent of these dormant gold savings are woken up, it would represent resources of Rs 7 lakh crore or $125 billion — which is more than this year's gross borrowing by the government,” the federation said.The federation has suggested that certain licenced jewellers be allowed to collect gold from consumers and deposit it with scheduled banks which will be easier to unlock, rather than setting up a bullion corporation or getting banks to into the business. “In such a case, we would not need to import gold for the next 3-4 years,” the federation said.

It suggested that imports intended towards parking of large funds in raw bullion, bar gold and other precious metals by HNIs and Institutions should be curtailed. “This shall help in countering the pure investment aspect and will eliminate gold hoarding by private individuals or institutions that are not in gems and jewellery manufacturing, retailing or the exporting sector. Our estimation is that import of gold may reduce by 75-150 tonnes per annum with this one step,” the federation said.

“ETFs and gold traded funds may be allowed to loan their idle gold stocks to channelizing agencies or nominated banks which can in turn be circulated in the manufacturing process of the gems and jewellery industry. This will help to reduce CAD and 50 per cent of ETF gold to be used for the gems and jewellery sector, thereby reducing the need for double imports,” the federation added.

New rules on gold imports by the government introduced last month have banned imports of gold on a consignment basis, besides stipulating that gold be imported only by jewellery manufacturers who require it as raw material in their jewellery making process.

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