Gold import duty should stay till March: Arvind Mayaram.

Mumbai/New Delhi: India should retain curbs on gold imports at least until March to stabilize the current account deficit (CAD) that weakened the rupee to a record low last year, economic affairs secretary Arvind Mayaram said on Tuesday.

“The government needs to keep the deficit low and should not tamper with the restrictions on gold shipments until at least to the end of the fiscal year on 31 March,” Mayaram told the Press Trust of India. D.S. Malik, a finance ministry spokesman in New Delhi, confirmed the comments to Bloomberg News.

India’s gold purchases slumped after the government increased the tax on imports three times in 2013 to 10%, linked shipments to re-exports and tightened financing rules to curtail a record CAD that pushed the rupee to an all-time low against the US dollar. The gap will narrow to about $56 billion this fiscal year from $88 billion in 2012-2013, the Reserve bank of India (RBI) estimates.

“Gold imports have been identified by policymakers as a problem area because this is not some kind of productive imports,” said Siddhartha Sanyal, an economist at Barclays Plc in Mumbai. “Just because the numbers are favourable for the last few months, I don’t think they will change it dramatically. They are not in any big hurry to change it,” he added.

The CAD was $5.2 billion in July through September, compared with $21.8 billion for the prior quarter and the lowest level since 2010, RBI said on 3 December. The current account is the broadest measure of trade, tracking goods, services and investment income.

Premature Withdrawal

“The government may allow the deficit to stabilize for about six months before considering any relaxation in gold imports,” Samiran Chakraborty, head of regional research at Standard Chartered Plc, said by phone from Mumbai.

“It would be premature to withdraw gold import restrictions now,” RBI governor Raghuram Rajan said on 19 December. “Once we feel more comfortable with the CAD, once we have a sense that tapering, at least the threat of it is behind us, we will certainly consider unwinding some of these distortionary actions,” he said in a conference call with analysts.

The government is seeking to cut gold imports to 800 metric tonnes this financial year from 845 tonnes a year earlier.

Imports totalled 423 tonnes in the six months through September, according to the World Gold Council. The regulations spurred a rise in smuggling and pushed premiums that jewellers pay to importers to a record $160 an ounce over London price last month.

“Although one would never encourage smuggling to happen, cost of this compared to the cost to the exchequer, or to the country from a higher current account deficit, if you evaluate the two, probably one would say the cost of higher current account deficit is larger,” said Chakraborty.

Consumption in India, which imports almost all the bullion it needs, accounted for about 20% of global demand in 2012, according to data from WGC.

Source : livemint.com