The Reserve Bank of India (RBI) on Monday put further curbs on gold import mandating that banks and nominted agencies should retain 20 percent (or one fifth) of every lot of gold imports in the customs bonded warehouses. They will be able to import further gold only if they release the 75 percent of that stored gold for the purpose of exports.
India's current account deficit (CAD) stood at 4.80 percent of GDP in the previous fiscal year that ended in March, 31. Higher degree of gold imports are seen as one of the key factors for the worsening CAD.
"It shall be incumbent on all nominated banks/nominated agencies to ensure that at least one fifth of every lot of import of gold (in any form/purity including import of gold coins/dore) is exclusively made available for the purpose of export," RBI said in a notification.
"Such imports shall be linked to financing of exporters by the nominated agencies (i.e. average of last three years or any one year whichever is higher). Further, they shall make available gold in any form for domestic use only to entities engaged in jewellery business/bullion dealers supplying gold to jewellers."
Also read: All steps will be taken to bring down CAD: Prime Minister
For example, if a nominated bank imports 100 kg of gold in form/purity. Now, the latest regulation suggests, 20 kg gold needs to be held in the bonded warehouse. The bank can import further gold only when it releases 15 kg (75 percent of 20 kg) for exporting gold.
The 20/80 scheme is primarily aimed at promoting exports while ensureing enough supply for domestic use. While the 20 percent of imports is linked with exports, the rest 80 percent will take care of domestic usage.
This worked something like this:
Under the previous restriction, banks had to make outright payment for whatever import they used to do. With the removal of the same, they can import gold on a large consignment but can repay their offshore supplier as and when the domestic buyers (jewellers and others) buy from them on tranches.
"Any import of gold under any type of scheme, shall follow the 20/80 principle set out. The extant instructions, as regards import of gold on consignment basis, LC restrictions etc. stand withdrawn," RBI said.
Earlier, RBI had constituted a working group on gold under the chairmanship of K.U.B. Rao, which recommended aligning gold import regulations with rest of the imports for creating a level playing field between gold imports and other imports.
"It's a negative reaction from the gems and jewellery industry," Umesh Parekh, Managing Director, Shree Ganesh Jewellery House, from Kolkata told CNBC TV18 .
"When we have 75 percent in the bonded warehouse there is a liquidity issue from all the exporters. Liquidity would be affected but looking at the scenario exports are not going to be very healthy next year. So, considering that we believe that this move is not very welcome by the industry," he said.
More updates follow...
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