Is tightening import norms only option to stop gold rush?

After China, India is the second largest importer of gold as the appetite for gold in our country is always on the rise.

The gold rush in the country has put policymakers in scurry to look for more stringent restrictions on import. Warnings have reportedly been issued that they should swiftly tighten the 80:20 rule, or else the current account deficit will spin out of control, like in 2011, says a report. According to the reports, gold imports had more than quadrupled in October 2014 to 106.3 tonne from 26 tonne in October 2013.

While the policymakers are mulling over tightening the import norms, the jewellers and bullion traders are opposed to stricter gold norms. They feel that the stringent import norms would create further damage to the industry and would lead to smuggling in the country. The All India Gems and Jewellery Trade Federation (GJF) has proposed that its members curb sales of gold coins and bars in an effort to prevent the government from imposing import restrictions on gold.

India Bullion & Jewellers Association (IBJA) has proposed encouragement for gold deposit schemes while GJF also proposed unlocking idle gold to the tune of 1,000-1,500 tonne in 3 years through its proposed Rashtriya Swarn Nivesh, a gold deposit scheme. In 2013, India increased its gold import duty to a record 10 per cent and made it mandatory to export a fifth of all bullion imports. The GJF has also urged the government to reduce the duty on gold to 2 per cent to make smuggling unprofitable.

According to the industry think-tank, there could be options to control rising demand for gold in India. One of them could be facilitate Gold Accumulation Plans (GAPs), which allow investors to buy gold in monthly instalments much like mutual fund SIPs. So, the saver signs on for a 5-year or 10-year GAP and deposits small sums with the bank every month, to acquire gold at prevailing market prices. At the end of the period, he GAP ‘redeems’ his units either in the form of bullion or in hard cash. These plans are quite popular in countries such as China and Japan. Another option is to unlock the gold hoard lying with Indian households back into circulation. In India, gold buyers don’t liquidate their holdings as they are forced to suffer a significant loss on such swaps as only a few jewellers offer to pay cash for any gold that is traded in and if they do, they deduct heavy making charges, wastage and other costs that the buyer incurred on the purchase. This apart, the use of PAN card for jewellery purchases could be a help. Though the government did announce a PAN card requirement for all jewellery purchases in an earlier budget, the new rules were for some strange reason, never enforced. Now, that the government is keen to track down black money, it can start by strictly enforcing a PAN card on all gold purchases above say, Rs. 1 lakh. This should limit the demand for gold as a tax haven and ensure that imports go only to meet genuine consumption demand, adds a report.