Entry of gold through the illegal route will continue if Finance Minister Arun Jaitley's gold monetisation scheme fails to enthuse Indians to unlock their household gold, experts say. It is estimated that Indian households hold nearly 20,000 tonnes of the yellow metal.
Gold import attracts 10% duty and despite several representations by the industry, Jaitley did not reduce it in the budget announced on Saturday, raising fears that unofficial gold supply will increase in the market.
"The FM has announced a slew of measures to curb black money in India, yet he has ignored one of the biggest issues of smuggling of gold into the country. Unless the import duty is lowered, the unofficial route will thrive and even black money may find a way into the country in the form of gold," said Mehul Choksi, chairman of Gitanjali group.
According to the World Gold Council, nearly 200 tonnes of gold entered India in 2014 through the illegal route. The landed cost of "official" gold has increased by 20% in the last one year compared with unofficial gold, as the premium went up due to strict import norms, gold traders said. "The impact of this " unofficial" supply of gold is valued at about $10 billion, leading to a loss in foreign exchange inflow of a similar amount and a loss in revenue of over $1 billion on account of customs duty," Choksi said.
Smuggling of gold and alleged entry of black money in the form of gold can only come down if India can reduce its dependence on imported gold. The FM's gold monetisation scheme is a step in that direction. Gold traders says that if the scheme is attractive, Indians might respond favourably. "We are waiting for the details of the scheme," said Haresh Soni, chairman, All India Gem & Jewellery Trade Federation.
The country generally imports 850-950 tonnes of gold every year. Earlier, the industry has proposed to the government that as part of the gold monetisation scheme, a bank account would have to be opened by the retail customer. Gold can be deposited for a maximum tenure of three years and the rate of interest will be tentative, depending upon the prevailing interest rate. When mature, the interest is paid not in rupees, but in gold, and the investor has more gold in his account.
Banks can lend this gold to jewellers or deposit it with the Reserve Bank of India that will free rupee liquidity for them. The industry feels that the introduction of Indian-made gold coins is a move in the right direction. "It is not yet clear whether the government will mint these coins or not. We are waiting for clarification from government," said Bachhraj Bamalwa, director, Nemichand Bamalwa & Sons.
Source:economictimes.indiatimes.com
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