Ever since Finance Minister Arun Jaitley announced the creation of a comprehensive gold policy, differences of opinion have surfaced among various ministries on key issues pertaining to the precious metal.
The Budget has been woefully silent on the details of the upcoming gold policy. However, apart from the setting up of a gold board and spot exchanges for the yellow metal, sources have said this may involve the government allowing export of gold refined by Indian companies. While an inter-ministerial panel has for years looked at pain points in India's gold market and international trade, it is only recently that the export of pure gold has become a topic of discussion, they added.
The Finance Ministry had argued that with India developing export capabilities, the country will be a stakeholder in determining gold prices globally. India is currently the world's second-largest gold consumer, after China. However, the Commerce Ministry has countered this view by arguing that such a move would also exponentially increase imports of raw gold into the country.
Official figures showed that gold imports by India stood at $3.39 billion in December 2017 as against $1.97 billion a year ago. Industry experts have attributed the surge in gold imports to lower global prices which ranged between $1,250 and $1,260 per ounce coupled with a robust local demand.
Creating the ecosystem for exporting gold may also be tricky. "The impact of any such move may be minimal as the demand from the domestic market is so large that it will always take precedence. Refiners would always have a large market available at their doorstep and they will sell to it first", Prathamesh Mallya, Chief Analyst — Commodities & Currencies at Angel Broking said.
Last year in August, the government had banned the export of gold products with purity above 22 carats in a move to reduce irregularities in the trade. This was mainly aimed at stopping the round-tripping of gold coins and medallions which were imported into the country and then exported back with minimal value addition.
Now, in the case that government allows export of 24-carat gold refiners would have to comply with international standards to ensure industry best practices, a senior Commerce Department official said. India is currently developing the Indian Gold standard in association with the London Bullion Market Association. Gold refineries will, in any case, have to be registered with the Bureau of Indian Standards from July, in order to meet BIS requirements.
The move is also expected to change the jewellery export industry who have complained that the high import duty remaining capped at 10 per cent in the last budget. "As of right now, traders are finding it difficult to cope with the large-scale blockages in working capital since the Goods and Services Tax refunds have not unilaterally started coming in," Sabyasachi Ray, Executive Director at the Gems and Jewellery Export Promotion Council said.
The government should focus on promotion measures for jewellery exports, the international market for which is currently established and plays to India's export strengths, he added.