The Land of Imported Gold

In the 1970s and early 1980s gold smuggling had dominated the international organized crime rackets that had provided the masala for numerous Bollywood films and the cinematic liberty had given gold smuggling almost a touch of romanticism. Gold smuggling with time has been replaced by smuggling of more lucrative items but gold retains its dark side till date. In India, investments in gold are the most sought after money laundering operation. Buying and selling of gold is a highly unorganized sector and zero taxation and absolutely no requirement of documentation has flooded the gold hub with black money and black marketeering. A strict vigilance on the part of the Government is essential as far as gold investments are concerned in forming a check valve to effectively arrest the flow of black money by increasing transparency in such investments.

Gold ranks second in the import bill of India, the first being crude oil. India is also the largest importer of gold. There is an ever increasing demand for gold in our country which is affecting the fiscal health in a major way as evident from the current ‘account deficit’ and the tumbling value of rupee. Such a situation is definitely a cause of concern for both the Government of India and the RBI. The government has hiked gold import taxes from 2% to 8% in past two years and it is fairly possible that the Union Budget of 2014 will witness a further hike in the gold import duties. RBI is mulling over reintroducing the ‘pre 1991 reforms’ to curb the import of gold. This would mean only certain banks will have the capacity to import gold, higher import duty, and heavy restrictions of buying and selling gold in the retail market. Both SEBI and the RBI are holding discussions on the current gold scenario and have arrived at some important decisions like promoting gold deposit schemes (GDS). The financial year 2012-13 saw a gold import of nearly USD 38 billion up to December 2012 while the total value of gold import in the years 2011-2012 amounted to USD 56.5 billion.

According to a senior government official, involved in gold import regulations, “Gold imports came down in June to about 31.5 tons. But they are expected to go up again”. The slump in the gold prices caused a massive buying spree in the domestic market that amounted to 162 tons indicating an increase in the import of gold in the current fiscal year which may even beat the whopping import figure of 969 tons in 2011. Besides the upcoming wedding seasons starting mid August and the impending Diwali festivals predict a different scenario which is conducive to the conclusions of the analysts and experts that ‘gold imports could pick up as the demand remains strong despite difficulties in obtaining supplies”. It may seem improbable but rural areas of our country account for 60% of the gold demand of our country; because in rural areas gold is an inherent item for dowry in marriages and also it is an important offering in various religious occasions and practices. The successful monsoon season will eventually hike the rural incomes thereby projecting an increase in the gold imports.

The most comprehensive report on the gold import bill is provided by the apex industry body ASSOCHAM, according to which calculating the gold import bill on the basis of CAGR of period 2010-11 over 1999-2000 could amount to USD 100 billion by 2015-2016. The report further added, “At these levels, gold imports are a huge burden on the balance of payments and accentuates the current account deficit. On the other hand, it represents a massive strain on investable resources and weaning away domestic savings from gold assume importance”.

While the Government and the RBI strive to formulate new policies linked to gold export, tax restrictions and implementing other counter measures to diminish the Current Account Deficit that reached as high as 5.4% of GDP in the quarter July-September 2012, and try to resuscitate the value of rupee to a healthy state, fact remains that in all probabilities gold import will show an increase. There may be a temporary slump in the gold import but appeasing our country’s appetite for gold is really tough. The glitter of gold is really perturbing for the Government as well as the RBI this time.


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