India’s gold imports would get a boost from the RBI’s decision to allow banks to purchase the precious metal on a consignment basis and clarify certain rules notified earlier, amid mounting expectations that the upcoming Budget would announce a cut in the basic customs duty on gold from the current 10%.
Already, responding to the move, shares of gold jewellers rose on Thursday, with Gitanjali Gems gaining 3.1%, PC Jeweller rising 2.7% and Titan Company 0.6%, outperforming a 0.5% rise in the Sensex.
The RBI allowed banks on Wednesday to import gold on a consignment basis — under which they act as intermediaries and don’t pay for the precious metal stocks until they find buyers — seeking to address a liquidity crunch in the sector. The central bank had banned gold imports on consignment basis earlier, along with the imposition of the 80:20 rule, as part of the official crackdown on the purchases of the precious metal from overseas to control a runaway current account deficit. Banks have also been permitted to offer gold metal loans.
Gold imports started slowing after the Reserve Bank of India (RBI), on November 28 last year, scrapped the so-called 80:20 rule, under which one-fifth of the imported gold was to be reserved for re-exports, as traders and dealers awaited more clarity on some of the operational aspects of the rule, fearing customs officials would hold up incoming shipments. Consequently, imports dipped to just 39 tonne in December, compared with 152 tonne in the previous month — the highest since May 2013.
“The latest RBI notification serves to clarify the unanswered questions on the 80:20 rule as well as gold financing and will smoothen the flow of gold imports now. Gold imports may rise to 60-70 tonne in March, compared with around 40-50 tonne in the last two months,” said Prithviraj Kothari, executive director of the India Bullion & Jewellers’ Association. “However, ultimately, imports will depend on demand, which is expected to reach an average of around 80 tonne a month,” he added. Gold imports hit 769 tonne in 2014, compared with 825 tonne a year before, according to the World Gold Council (WGC).
Demand is expected to rise from March for the wedding season, which continues until July, while Akshya Tritiya also falls in April.
While hailing the notification for lending clarity to import rules, Pankaj Parekh, vice-president of the Gems and Jewellery Export Promotion Council, expressed surprise at the central bank’s decision to lift the ban on the import of gold coins and bars. “The RBI needs to promote value-addition in the jewellery sector. Lifting the ban on bar and coin imports would prompt people, who would otherwise purchase jewellery even for invetsment, to shift to these products.” “However, other aspects of the notification are aimed at boosting domestic manufacturing by making the availability of gold easier,” he added.
“Indian gold demand would undoubtedly benefit if the government decided to cut import tariffs in response to the big drop in its current account deficit,” said an HSBC analyst.
Somasundaram PR, managing director (India) of the WGC, said: “It is the right time to look at all aspects of gold policy with a longer term perspective, going beyond just import policy and incremental changes. The focus of government must be on making gold a smoothly fungible asset in the hands of the millions of households.”