After a 61% slide in exports of gold jewellery, bars and coins in the first quarter through June, the country’s shipments of such items are expected to get a leg-up, thanks to a fresh pick-up in orders and the central bank’s recent guidelines to boost supplies to overseas, jewellers and industry executives said on Friday.
The exports of such items, especially gold jewellery, are expected to rise by up to 15% in the current fiscal year through March from $18.28 billion in 2012-13 as the central bank steps in to improve supplies for exporters, they said.
India, the world’s top bullion consumer, barely produces gold and depends on imports to cater to both domestic and export demands. It purchases the precious metal from overseas and exports value-added products such as jewellery, medallions and coins.
On July 22, the RBI directed all nominated banks and agencies to ensure at least one-fifth of imported gold is reserved for export purposes, which will have to be kept in customs-bonded warehouses. Importers will be allowed to undertake fresh purchases only if exports have taken place to the tune of 75% of stocks in the warehouses.
It also withdrew earlier restrictions on imports on consignment basis and the guideline that all letters of credit must be opened by the designated banks or agencies for imports only on a 100% cash margin basis.
Moreover, the imports are now linked to the financing of exporters by the nominated agencies ? the average of last three years or any one year whichever is higher. Gold would also be made available for domestic use only to the entities engaged in jewellery business or bullion dealers supplying the metal to jewellers.
“What the central bank has done through the latest measures is promoting exports while keeping a lid on avoidable domestic demand to help trim a runaway current account deficit (CAD). So while it has sought to ease supplies by lifting curbs on imports on the consignment basis, it has mandated that 20% of the imported gold must be used for re-exports,” Rajeev Sheth, chairman and managing director of Tara Jewels, told FE. The company is a major exporter of studded jewellery.
Moreover, the country barely uses 10-12% of its imported gold volume for purpose of value-addition and subsequent exports.
By reserving 20% of gold for exports, the central bank has sought to boost exports in a major way, said Umesh Parekh, managing director of Shree Ganesh Jewellery House (I). The country imported 845 tonnes of gold in the last fiscal. These measures will be effective in stemming the conversion of black money into gold as those that don’t export will not be able to import in large volumes and make people purchase gold citing it as a safe haven, Tara Jewels’ Sheth said.
Gem and Jewellery Export Promotion Council convenor (jewellery panel) Colin Shah said the outbound shipments of jewelleries, including gold, are expected to grow by 15-20% in the current fiscal.
The country’s total exports of such items had dropped 9.4% in the last fiscal and 13.2% in the first quarter of the current fiscal.
Last month, the government had raised the import duty on gold to 8% from 6%, marking an effective eight-fold hike since early January 2012, and the central bank had extended restrictions on gold imports on consignment basis to agencies, in addition to banks.
The RBI also directed that all letters of credit must be opened by the designated banks or agencies for gold imports only on a 100% cash margin basis.
The measures came after imports had exceeded 300 tonnes in just two months of the current fiscal, partly stoked by huge purchases following a drop in prices in the international prices since mid-April. However, imports dropped to 31.5 tonnes in June due to the crackdown and an absence of festivals.
The government is worried particularly about the fact that an “idle” asset like gold has been pressuring the country’s CAD.