15-Jul-2013
KOLKATA (miningweekly.com) - The Indian government is mulling a number of new measures to consolidate the falling trend in gold imports over the past month, including stiffer licensing conditions for importers.
According to senior government officials, the Finance Ministry has initiated a consultation process with various government departments and the Reserve Bank of India (RBI) to look into the possibility of laying down fresh, stiffer conditions for the granting of licences to importers.
One of the options currently favoured by the Finance Ministry is to restrict the granting of gold import licences to gold that is for actual use, such as for jewellery making, and not for investment or trading purposes, the official said.
Many of the RBI's senior staff were also against the granting of gold import licences to some commercial banks, as imported gold was used by commercial banks for retail sales to investors. The RBI officials have recommended that only government-owned trading companies should be eligible for imports and not actual refiners, which would choke demand for gold for retail investment purposes.
“New measures to curb the import of gold were felt necessary in order to consolidate the success achieved with earlier measures,” a senior bank official involved in the consultations said.
“Rising oil and gold imports were two main constituents of the country’s worsening current account deficit (CAD). Since oil imports cannot be checked in view of energy needs, the government feels it necessary to be most aggressive in curbing gold demand,” the official added.
Gold imports during June 2013 fell to 28 tonnes, down from 162 tonnes in May 2013, in response to the central bank restrictions last month. The RBI imposed that all gold imports intended for domestic consumption and made through either nominated agencies or directly, would have to be through 100% cash margins.
The central bank prohibited all forms of credit from any suppliers or bullion banks, for domestic use of gold which would impact gold imports on a nonconsignment basis, such as gold on lease or loans.
However, government circles were not sure whether the fall in imports in June could be entirely attributed to the measures taken, as the June to September period usually witnessed muted demand, owing to widespread monsoon rains and the agricultural sowing season in the rural regions.
A demand upsurge could not be ruled out during the September to December period, driven by the festival and marriage seasons and higher liquidity in rural areas during the harvesting season. As a result, the new measures to check imports would have to be sustained, the official said.
In March this year, India’s CAD hit a seven-month high of 4.8% at $20.1-billion, with gold imports of 830 tonnes during 2012/13 being the second-highest contributor after the oil import bill.
New measures to check gold imports assumed further urgency, with the RBI, last week, once again, raising concern over the large CAD and new pressures emerging on it from the weakening exchange rate of the rupee. Since May 2013, the Indian rupee hasdlost 15% against the greenback, resulting in the further ballooning of the gold import bill unless imports are checked.
Source:-www.miningweekly.com
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