RBI steps may lead to round-tripping of gold

Jul 24 2013, 13:31 IST
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RBI’s Monday circular, changing import conditions once again and lifting the earlier restrictions, has left the industry confused. RBI’s Monday circular, changing import conditions once again and lifting the earlier restrictions, has left the industry confused.
SummaryRBI's latest measures for gold import have left the dealers of the commodity confused.

At a time when jewellery makers and bullion dealers were coming to terms with the new restrictive gold import policies announced last month, RBI’s Monday circular, changing import conditions once again and lifting the earlier restrictions, has left the industry confused.

The latest guidelines rationalising gold imports by linking them to exports are primarily being seen as a big positive for export-focused jewellery producers. However, they may also lead to false reporting of exports called “round-tripping”, believe industry players.

“The latest norms are to ensure that imports by an entity are not more than five times their exports. While these changes make exporters the biggest beneficiaries, they may also lead to a rise in delusive reporting of exports by pretend value additions like packaging changes,” said a sector expert.

In 2012, India's gold exports stood at about 220 tonne or 25% of net imports of 860 tonne, almost 170 tonne of it was round tripping, as per estimates put out by gold consultancy Thomson Reuters GFMS, On Monday, RBI in a circular said nominated banks and agencies that import gold have to ensure at least 20% of every lot of imported gold is exclusively made available for export with this quantity to be retained in customs bonded warehouses. They are permitted to undertake fresh imports only after the exports have taken place to the extent of at least 75% of gold remaining in customs-bonded warehouses.

As per Kotak economic research, these steps can help to cap gold imports only to an extent. “Compared to banning the consignment route which has now been reversed the measures are likely to be negative for the current account deficit as they reduce funding challenges for domestic jewelers,” it said in a note.

Some market players said that the rules are applicable to the institutions importing gold and hence may not affect the buyers who purchase their requirements from these entities.

“Nominated banks and agencies may not have to push these rules on the buyers from jewellery industry given that many of their clients are exporters. The demand from these exporters can to a huge extent take care of the 20% export rule,” said TS Kalyanaraman of Kalyan Jewellers.

There is a view that nominated banks and agencies may have to facilitate arrangements in which their clients with higher domestic usage may fund their export oriented clients in order to meet the export requirements laid down

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