Crackdown on gold smuggling leads to drop in discount offered from 5% to 1%.

KOLKATA: A crackdown on smuggling has led to a drop in the discount offered on gold in the domestic market over the official rates, from 5% a fortnight ago to 1%.

Officials said the Directorate of Revenue Intelligence (DRI) has intensified its drive to stop movement of smuggled gold through Mumbai, Kolkata, Kochi, Chennai and Ahmedabad, after bullion traders brought it to the notice of the finance ministry.

"From March we have observed a 50-60% drop in official imports of bullion. This gap was being taken care by the grey market that offered 5% discount from the daily international rate which was killing the official gold sector and draining government revenues," said James Jose, secretary, Association of Gold Refineries and Mints.

Jose said the discount has already dropped to 1% and "hopefully by the end of this month the discount will disappear". Traders said smuggling can be stopped if the import duty on gold is brought down to 5% from 10% at present.

Associations engaged in gold trade had met the government to discuss about entry of gold through the illegal route. "This prompted the government to beef up security checks to stop entry of gold through illegal route. There have been a lot of gold seizures by DRI," said Haresh Acharya, secretary, Bullion Federation of India.

The World Gold Council has indicated that 160 tonnes of gold can enter India this year through illegal route. Gold imports, once a key contributor to India's trade bill, hit a 31-month low of $1,078.14 million in July. On a year-on-year basis, gold imports fell over 63.65% to $1.08 billion from $2.97 billion, according to the Reserve Bank of India data. Total gold imported in the first half of 2016 stood at 199 tonnes, half the volume imported a year ago.

Though official figures of gold imports in August are yet to come in, traders said the trend would be the same as that in the previous month.

Import of gold also depends on the price factor. Price of the yellow metal has increased 25% since the beginning of this year. Gold traders are keeping a close watch on whether the US Federal Reserve hikes interest rate next week. If that happens gold will come under pressure and prices will drop, spurring demand in India.

On Wednesday, gold for October contract on MCX was trading at Rs 31,040 per 10 gm in the afternoon session, Rs 41 less than Tuesday's closing price of Rs 31,081per 10 gm.

Source : economictimes.indiatimes.com