Even after a hike in customs duty
last year, gold imports
continue unabated, according to the All India Gems and Jewellery Trade Federation (GJF).
In 2011, India had imported over 900 tonnes of gold and none of it came through smuggling, the representatives of the gems jewellery industry told a press conference. In 2012, the imports were 950 tonnes, out of which 250 tonnes came through smuggling.
“The hike in customs duty did not stop gold imports into India, but only changed the route as smugglers earn a profit of around Rs 200,000 on every kilogram of gold smuggled into the country,” said GJF Chairman Bachhraj Bamalwa.
After the customs duty on gold was raised from less than 1 per cent to almost 6 per cent in the past year, illegal gold worth Rs 942 crore was seized during April-June 2012, compared with 243 crore during the same period last year, said Bamalwa.
The gems and jewellery industry representatives said if the government makes 1 per cent tax at source and make PAN numbers mandatory for purchase of bullion instead of jewellery, import of gold will come down by at least 150 tonnes in 2013.
“Our estimates show that because of the high customs duty and no check on bullion sales, almost 200-250 tonnes of gold has been smuggled into India in 2012 alone,” Bamalwa said.
India, the world’s largest consumer of gold, has been facing a huge problem of widening current account deficit (CAD) because of outflow of the foreign exchange on gold imports.
The CAD widened to $38.7 billion or 4.6 per cent of the GDP in the first half of the current financial year, pushing the government to hike the customs duty from 4 per cent to 6 per cent. In the Budget for 2012-13, it was raised from 2 per cent to 4 per cent.
Bamalwa said Indian gems and jewellery industry fully understands the government’s concern on CAD. However, for that, the entire blame should not be put on the gems and jewellery industry, he added.
The jewellers suggested other measures to bring down India’s gold imports, which will also pull down the CAD.
“The government should unlock the gold held by exchange traded funds (ETFs) and mutual funds and should be returned back to the banks who can then lend it again, thereby reducing their imports by that much amount,” said Bamalwa.
Around 38-40 tonnes of gold is held by ETFs and mutual funds.
The jewellers also suggested that the government should allow them to pay in cash for gold sold by consumers, operate a gold deposit scheme and curb gold imports by star trading houses not involved in jewellery business. The import duty on jewellery should also be raised to 16 per cent from the existing 12 per cent to protect domestic manufacturing, they said.
“Imports have risen as gold has given better returns than real estate or capital markets, but to stop that, we should not create a monster (customs duty) to kill a mouse (CAD),” they added.