Government May Reserve 20% Imported Gold For Small Players

The government is considering a proposal to reserve 20% of gold that importing bodies sell in the market for small jewellers, according to an official, a move seen creating a level playing field in the industry. The move follows a petition filed in the Delhi High Court by the Delhi Bullion and Jewellers Welfare Association (DBJW).

The petition argues that gold import rules framed by the UPA government favour large trading organisations, and that they are forced to pay huge premium to procure the yellow metal.

The court had directed the government to look into the matter. "Currently, banks give preference to old and loyal customers while state agencies follow some other criteria, so we are trying to evolve some common principle or guidelines that will provide a fair play to smaller players", said an official of the Directorate General of Foreign Trade (DGFT). "We have had stakeholder consultations and have invited comments, based on which we will evolve guidelines though consensus."

In its petition, the DBJWA said banks and nominated agencies were given access to the local market as long as they made a fifth of the gold they imported available for export.

A large section of gold traders allege that most of this gold is picked up by the big jewellers, leaving the small players with no option but to pay huge premium to procure the metal.

Another official said that under the formula being considered, banks and star trading houses that have the Reserve Bank's mandate to import gold will have to earmark 20% of the gold imported for domestic usage by the small and marginal players.

At present, gold is made available to traders in accordance with the 80:20 rule, which says that importers must re-export a fifth of the gold bullion shipment before taking delivery of the next.

To check the widening current account deficit, the UPA government had raised the import duty on gold to 10% from 2% in stages, and also said 20% of every consignment of imported gold had to be exported, with only select banks allowed to import the metal.

The import restrictions, however, led to the CAD falling to 1.7% of GDP in 2013-14, against 4.7% in the previous fiscal.

Talking to ET, DBJWA general secretary Prem Prakash Sharma said, "The court had directed the ministries of finance and commerce, the DGFT and others to file a reply with issues that prompted them to allow a handful of star trading houses to import gold into India. Following this directive, there had been a series of meetings with the finance ministry and the Reserve Bank of India. In the last meeting with the DGFT, a formula has been worked out to tide over the present situation."

Pankaj Parekh, vice-chairman of Gem & Jewellery Export Promotion Council, said, "If a country's gold consumption is 950 tonnes, and only 400 tonnes are being imported, there is bound to be a premium. So those who can afford to give a premium get it, and small and marginal players feel left out.

The DGFT has found out a way and it will soon be incorporated." The modalities of the new formula are being worked out by a committee headed by Parekh. The committee includes members of banks and star trading houses.

Source:- economictimes.indiatimes.com