As gold imports hit a 15-month high in September, the government is contemplating some measures, including tweaking the so-called 80:20 rule and revisiting recent provisions to allow more entities to buy from overseas, to prevent a flare-up in precious metal purchases and contain their debilitating effect on trade balance.
Senior officials from the the Reserve Bank of India and ministries of finance and commerce huddled together on Thursday to seek ways to curb imports and promote exports of finished products, sources told FE.
“The government is considering changing the provisions to allow only those star trading houses that have vast experiences in handling gold imports to buy from abroad. Moreover, the 80:20 rule could be altered to increase the minimum export criterion,” said one of the sources.
Efforts will also be to make the raw material available to even small jewellers from the imported volume, he added.
Under the 80:20 rule, the RBI last year mandated that at least 20% of imported gold be kept aside for export after value addition, in a bid to curb supplies and contain the current account deficit.
However, partly acceding to the industry’s demand to ease supplies, the central bank in May permitted star-trading houses, even without any experience in handling gold, to import the precious metals. But bullion industry executives soon complained that such trading houses were importing gold in large volumes only to take advantage of the premium on gold supplies and are also not following a transparent mechanism to distribute the imported raw material among jewellers or other buyers, mostly neglecting the smaller ones.
Gold imports by India, the world’s second-largest consumer, hit $14.65 billion during the April-September period from a year before, down 27.4% from a year before. However, the imports in September rose 451% from a year before and those in October are expected to be even higher in absolute terms. This has reinforced fears among policymakers about its impact on the CAD, especially when export growth is far below potential.