Sonia for end to gold curbs, govt begs off

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FM: Until we have a firm grip on CAD, no rollback of any measure

Sonia for end to gold curbs, govt begs off
Finance minister P Chidambaram on Thursday said there would be no rollback of gold import duty without first getting a firm grip on the current account deficit. His comments came in the wake of Congress president Sonia Gandhi’s reported letter to the government, asking it to ease gold import restrictions. He said he had not read the letter.

“Until we have a firm grip on the current account deficit, I do not contemplate any rollback in any measure. We will have a full idea of the current account deficit only when the budget is presented and when the year comes to an end,” Chidambaram, now in Davos attending the World Economic Forum meeting, told a TV news channel.

Import duty on gold was increased thrice from a 2 per cent to 10 per cent as the current account deficit soared to $88.2 billion in 2012-13. Besides, there is also a stipulation that 20 per cent of gold imports will have to be exported by way of jewellery.

The curbs have resulted in increased smuggling but official imports have come down from $58 billion level in 2012-13 when gold was next only to oil on the import bill. Reduced gold imports have narrowed the current account deficit, which is expected to be $50 billion this financial year.

The deficit in the first half (April-September) narrowed to $26.9 billion (3.1 per cent of GDP) from $37.9 billion in the first half of the previous financial year. With the general elections looming, the UPA government will present only a vote-on-account (interim budget) on February 17. A full budget will be presented later by the successor government.

Sonia is reported to have written to the commerce ministry asking it to look into the gems and jewellery industry’s demand for a cut in import duty on gold and relaxation of the 80:20 import rule.

Gold imports fell to 19.3 tonnes in November from a high of 162 tonnes in May in the wake of a series of curbs by both the government and RBI.

The demand for a cut in duty is not new, repeated now and then, the last was last month after the current account deficit narrowed and gold imports went down. Even then, Chidambaram had said he would consider a rollback only when he was confident of having reined in the deficit.

Pankaj Parekh, vice-chairman of the Gems and Jewellery Export Promotion Council, said, “We have been asking the government to either bring down the import duty or scrap the 80:20 formula for imports. The measures have to be for the short term until the current account deficit improves.”

High import duty has increased gold smuggling into the country.

Exports of gold jewellery have been down for several months. Even with the 80:20 formula, gold shortage has not eased in the export sector. Procuring gold from the domestic market has become difficult and imports are unviable with the high duty and premiums, according to Parekh.

Mehul Choksi, CMD of Gitanjali Gems, said organised players had been having a tough time in procuring gold. “Duties and the restrictions have curbed imports for domestic consumption, but exports too have suffered. The absence of long-term credit for import of gold will continue to put pressure on the liquidity of jewelers,” he said.

C P Krishnan, director in Geojit Comtrade, said that with the high import duty and premium, there was a big gap between international and domestic prices. This would narrow if import duty was cut.

“Once smuggling comes down, official availability will improve, bringing down the premium. It will benefit customers, but for the industry things will get only partially resolved unless long-term credit is available,” he said.

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