Has the Reserve Bank of India (RBI) tightened norms for gold imports to ease the pressure on the widening current account deficit? Or, has it actually eased them?
Media reports unanimously suggest that the Indian central bank has tightened the norms for import of gold. But take a close look at RBI’s 22 July release and you’ll see the norms have actually been eased.
Indeed, banks and other entities that import gold will now have to ensure that at least one-fifth of the metal they bring in is used for exports and importers will be required to retain 20% of the imported quantity in customs bonded warehouses and will be allowed to go for fresh imports of gold only after 75% of the metal stock is exported.
Any import of gold under any type of scheme will now have to follow this “20/80 principle” but this in no way suggests that RBI has tightened gold import norms. Because along with the new norms, the 4 June directive on import of gold on consignment basis and restrictions on letter of credit (LC), etc, stand withdrawn. In RBI’s lingo, this is rationalization of gold import norms.
What does this rationalization mean?
On 4 June, RBI had said any import of gold by any agency would be only on consignment basis to meet the genuine needs of exporters of gold jewellery.
It had also said that for such imports, LCs would be opened by banks only on a 100% cash margin basis. Besides, all such imports would be on the basis of documents against payment (DP) in contrast to documents against acceptance (DA) basis.
Shorn of technicalities, these measures wanted to kill speculators in the gold market as anybody wanting to import gold would need to put money on the table. The banks were not allowed to give any credit for such import.
That was real tightening of norms. Now, RBI has actually relaxed them by removing all those conditions. Now, all imports are free, as they were before the 4 June directive, with the only caveat being that 20% of imported gold is to be used for export. Till this directive, gold could be imported only for exports.
The latest directive also says that gold can be imported in any form, including coins. The June directive was silent on gold coins.
Gold imports in June are estimated to have fallen to around 31 tonnes, down from 162 tonnes in May and 141 tonnes in April, according to a Press Trust of India report on 16 July. Imports stood at around 830 tonnes in 2012-13.
RBI started taking steps to curb gold imports in May. Along with other measures, it also capped loans against gold coins to those weighing upto 50gm per customer.
Incidentally, last week, finance minister P. Chidambaram ruled out a complete ban on gold imports but urged Indians to moderate their demand for the yellow metal. The government has raised the import duty on gold in phases from 2% to 8%.
There has all along been tremendous pressure from the gold lobby and finally RBI has succumbed to that. Or, am I reading it wrong?