Long the top importer of gold, India fell behind China in 2013.
The decline in gold consumption came after bullion import duties were pushed up tenfold – from 1% at the start of 2012 to 10% – and other rules such as mandatory re-export of 20% of imports, transaction taxes and even curbs on ETF buying stymied India’s gold industry.
The measures worked as intended, bringing down the country’s current account deficit and shoring up the rupee. But optimism after the election of business-friendly prime minister Narendra Modi and after the government allowed certain jewellery trading houses to start importing again saw imports surge.
In October Indian jewellers and traders imported 150 tonnes from just 25 tonnes this time last year worth reports Reuters:
“We are working on it. The measures to slow gold imports are almost ready and may be announced today or tomorrow,” said the source, who declined to be named because of the sensitivity of the matter.
Officials from the finance ministry and Reserve Bank of India (RBI) were considering whether to reimpose import restrictions on “star trading houses” that were eased earlier this year, the source said.
The new measure could be imposing new restrictions on these trading houses, tightening the import-export ratio to 70:30 or even 60:40, and raising the import duties again, but making the rules too draconian only encourages increased smuggling.
September and October is traditionally the two busiest months as buying surges ahead of the Hindu festival of Diwali and the wedding season. This year the fall in the price of crude oil – India’s top import commodity – softened the impact on the current account and the rupee.
Government import restrictions led to a scarcity of physical gold inside India which sent premiums paid over the London price to rocket to as much as $130 an ounce during the 2013 gold festivals and wedding season.
Recently premiums have started creeping back up but remain in the early double digits.