DHAKA: Since February, import of gold for domestic consumption (as opposed to that done for export, after value addition) has taken a big hit. That is, through official channels; ‘unofficial’ imports have increased significantly. Officially imported gold is sold at a discount, of 2.5 per cent. A discount indicates a lack of demand at the price; the various measures requiring compliance and disclosure has meant a shift in the official trade to those dealing in unofficial gold.
For the past five months, the price of gold in India has been quoted at a discount. In February, this was around $30 an ounce when prices were Rs 27,000 for 10g, meaning 10g was sold Rs 650 lower than the cost of import. A similar discount has returned in June. On Friday, when the price jumped sharply, the discount was quoted at a high of $40 an oz; unofficial gold is since selling at a discount of $60-65 an oz or nearly five per cent, with unofficial imports for domestic consumption having increased more.
The trade estimates the average import for the domestic market in the past five months is 10-12 tonnes; 20 tonnes is imported duty-free or for export. Smuggled gold import is also estimated at a monthly average of 20 tonnes.
James Jose, secretary, Association of Gold Refineries and Mints, says gold from refineries in excise-free zones like Uttarakhand are also selling refined gold at a one per cent discount. This has helped reduce the import bill. Gold imports in the first five months of this year, for which official data is available, was $7.8 billion, from $14.1 bn in the same period of 2015. However, “this is because unofficial imports have increased due to a high duty arbitrage of 12 per cent, including state levies and lack of guidelines on which type of gold can be imported,” said Haresh Acharya, secretary, Bullion Federation of India, a body recently formed by dealers to promote sale of bullion only through banking channels.
James said due to imposition of excise duty, “Jewellers want to keep their turnover below the excisable limit and, hence, are preferring unofficial imports. This has significantly impacted the business of gold refineries, dealers and banks importing gold.” Another reason is the compulsion to provide the PAN (income tax) number for jewellery purchase above Rs 2 lakh, which customers are not comfortable with. So, jewellers either resort of jewellery made from unaccounted gold or make fake bills, using PAN numbers collected from “other sources”.
Union finance ministry officials recently discussed this issue with the Bullion Federation and are checking official imports in high consuming states. Trade sources said a daily average of 600 kg gold was entering India unofficially. The trade estimates that of this, 200-250 kg comes to Mumbai, 100 kg each in Kolkata and Kochi and 150 kg is imported in Chennai.
The Association of Gold Refineries and Mints has written to the government that such gold is entering, “through channels operating in the country’s porous borders of Nepal, Bangladesh and Sri Lanka”. The havala route is used to pay for such imports, the present rate being 3.5 per cent. The bigger danger is that such funds could be reaching terrorist organisations, says a big bullion wholesaler.
The Bullion Federation says its members are doing business only through banking channels, which will help expose those dealing in cash. It wants the import duty cut to six per cent (from 10 per cent), apart from allowing export of gold bars.
The Association of Gold Refineries and Mints has requested a cut in the import duty to six per cent, a cut in the countervailing duty on dore (partially refined gold) to 5.05 per cent, from 8.75 per cent, and to reduce the excise on refined gold to 5.35 per cent, from 8.35 per cent. If this is done, it says, “Smuggling of gold will stop. Gold import through official channels will pick up and neutralise the present loss of revenue for the government.”
