Gold importers charge a premium.

NEW DELHI: It isn't just the higher customs duty on gold which is pushing up jewellery costs. The government's move to restrict import of the yellow metal has resulted in a windfall for the designated importers such public sector companies and banks, which have now begun charging a premium, giving jewellers reason to seek higher prices from you.

While the total duties on gold add up to 11.5%, some of the importers such as MMTC are charging an equal amount of premium to cash in on the near monopoly rights vested with them, in what is seen as a throwback to the days of licence permit raj. Market sources said, MMTC is charging a premium of around $125 an ounce, which works out to around 10.5% of the international price of around $1,200 an ounce.

The government had clamped down on gold imports to deal with the widening current account deficit, and has now allowed only a handful of agencies to import gold and sell to local players. But even this comes with the stipulation that only those players will be allowed to import who are willing to export at least 20% of the imported yellow metal.

"Such a situation arises whenever there is demand-supply mismatch. Importers are charging 3-4% premium," said Pankaj Parikh, vice chairman of the Gems & Jewellery Export Promotion Council. State Trading Corporation, another canalizing agency for gold imports, recently increased the premium to $42 an ounce, citing the 3.5% premium that Bank of Nova Scotia, the largest player in the business after MMTC, is charging. Even state-run banks that have been designated to import gold are charging a premium, jewelers said.

Despite several attempts, MMTC executives refused to comment on the story, while a questionnaire e-mailed to Bank of Nova Scotia went unanswered. In case of MMTC, jewellers also alleged that the system of allocation also lacks transparency.

The importers are justifying the premium, arguing that it is meant to cover administrative and transportation costs. What they refuse to disclose is that the premium was put in place after the 80-20 rule, requiring mandatory exports, was put in place late last year.

Gold traders allege that even the government is turning a blind eye. "We have raised the issue with officials and they laugh it off saying that the premium will help reduce imports further, which is the objective," said a large jeweller.

Source : timesofindia.indiatimes.com