Curbs choke gold jewellery export

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The Reserve Bank of India’s 80/20 formula for gold import has failed in its objective of lifting exports. Trying to curb gold imports for domestic use to contain current account deficit the central bank had mandated that 20 per cent of every consignment should be supplied for export purposes.

The formula triggered confusion at customs, bringing gold imports to a halt for three months. Imports resumed in September after the customs department cleared the confusion, but exports of gold jewellery, medallion and coins are still down 48 per cent from last year’s level. Gold bar imports for the export sector are down 54 per cent.

“Exports should have gone up. There was a potential for higher exports, which is the case when gold prices are down. But exporters, especially in the domestic tariff area, are finding it difficult to procure gold for export purposes,” said Pankaj Parekh, vice-chairman of Gems and Jewellery Export Promotion Council (GJEPC).

The export sector used to consume around 70 tonnes of gold per annum.

Difficulties in gold procurement have led to a 48 per cent drop in the export of gold jewellery, medallion and coins to $7,213.53 million in the nine months till December 2013 compared with $14,022.07 million in the comparative period a year ago.

Rajesh Mehta, chairman of Rajesh Exports, a gold & diamond jewellery manufacturer, said confusion over the gold import norms persisted. “The circulars make no sense. It’s difficult to fulfil the conditions and things are not clear. If getting gold itself is tough; how will exports grow?” he asked.

The RBI scheme requires a consignee to provide proof of export before bringing in every third gold consignment. “The authorities are taking several weeks to verify the genuineness of shipping bills. This is causing much delay,” said Parekh.

Imports under the ‘gold replenishment scheme’ too have dried up. “The latest RBI circular on gold import did not mention the replenishment scheme, leaving nominated agencies confused about supplying gold under the same. The scheme allows an exporter to ship out duty-paid gold stocks meant for domestic consumption and get that quantum replenished without paying duty,” he said.

The duty-drawback scheme does not fully reimburse the levies paid for gold procured domestically. Under the scheme, the government pays 8.5 per cent back to the exporter for the 10 per cent duty paid. The one per cent VAT an exporter has to pay and premium levied by nominated agencies are also not reimbursed.

“We anticipate flat growth in gems and jewellery exports in this financial year, despite 30 per cent growth in diamond exports, mainly due to the drop in jewellery exports,” said Vipul Shah, chairman of GJEPC.

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