This has not only hurt the domestic jewellery manufacturing but also reduced exports by half in the April-January period of this fiscal to $7.8 billion from a year before, defeating the twin purpose of trimming trade and current account deficits (CAD) for which authorities had imposed restrictions on gold imports, they said.
Exports of gold medallions and coins hit zero last month, compared to $430.83 million a year before and $262.62 million in December last year, according to the latest data by state-run Gem and Jewellery Export Promotion Council (GJEPC).
Exports of gold jewellery dropped 33% last month from a year before to $482.22 million. To control CAD, the government raised the import duty on the precious metal three times last year to 10% from 4% and the RBI mandated that at least one-fifth of the imported gold be kept aside for re-exports.
Haresh Soni, chairman of the All India Gems and Jewellery Trade Federation, said: "Before the 80:20 restriction by the RBI was imposed in July last year, we could bargain for the premium of even $1 dollar per ounce with the gold importing agencies such as MMTC, STC or designated banks before purchasing the raw material. Today, the importing agencies are asking for a premium of $80-120 per ounce, depending on locations, over the London futures price for supplying gold to us."
Last year, the premiums had hit a record $160 per ounce. At $120 per ounce, the gold premium would account for another 9% of the price, based on Friday's intraday price, which is way higher than the premium range of 80 cents to $1.7 per ounce in Singapore and Hong Kong. Factoring in a 10% import duty, a 1% value-added tax and surcharges in India, the raw material for making jewellery is already more than 20% dearer than its actual price overseas.
If the making charges are the same, one can import gold jewellery by paying a total of 16.3%, including a customs duty of 15% on jewellery, said Y S Ravi Kumar, honorary secretary at the Bangalore-based Jewellers' Association.
"I have got export orders for which I need 50 kg of gold immediately to deliver on time, but my supplier Nova Scotia says the clearance for its gold consignment has been delayed by the customs officials," said Vijay Khanna, head of Delhi-based Khanna Jewellers.
Pankaj Parekh, vice-chairman of the GJEPC, questioned the RBI's restrictive measure. "When there is a phohibitive duty of 10% on gold imports, what is the need to impose the 80:20 rule Who are you trying to benefit when even exports are going down drastically," he said.
Gold set for biggest rally since July
Global gold prices remained flat in intraday trade on Friday but were still on course to its loftiest monthly rally in February since July last year on concerns about the state of the US economy and its likely damaging impact on the dollar.
A weak greenback enhances the appeal for gold, considered a haven asset. Moreover, weak economic data about China and geo-political tension in Ukraine have supported the precious metal.