The price of gold has again started quoting at a discount here, perhaps for the first time in three months, following increased import. The metal is quoting at a discount of about $1 an ounce. On October 18, the Directorate General of Foreign Trade had restricted star export houses from importing gold, allowing it only if they then process it into jewellery for onward export. Beside, their licences as nominated agencies, to import on behalf of third parties, isn't valid any more. However these houses have found an official way to circumvent this order. They’re buying special incentive Duty Credit Scrips at around a four per cent discount and using these to make payment of import duty on gold. They then sell that gold, which is around $5 an oz cheaper compared to that offered by banks. These houses sell gold at a $1-2 discount and make money as well. Ten to 15 per cent of gold import is estimated to have happened by this method. The Union commerce ministry issues these duty credit scrips under the Merchandise Exports from India Scheme (MEIS), beside schemes relating to capital goods and services export.
These export houses usually buy scrips issued against MEIS; these may be had at up to a two to five per cent discount on the FOB value of export. The discount varies from country to country.Exporters unable to use these scrips sell these at a discount of four to five per cent. Effectively, a scrip worth Rs 1 lakh, bought for Rs 96,000 after a four per cent discount, can be used for paying duty of Rs 1 lakh. When used for gold, the effective duty incidence falls from 10 per cent to 9.6 per cent; at the current price of gold, this comes to $5 an oz. The restriction on import of gold by star houses had been imposed to stop the practice of getting in duty-free gold, officially for re-export, and then selling it in the market, using the money as interest-free finance to buy back gold at the time of re-export. Some were also found doing round-tripping (selling with a agreement to buy it back in the future, done to inflate the apparent amount of sales revenue) of gold. In October, gold import fell 16 per cent to $2.94 billion, which analysts say is about 75 tonnes. The price, meanwhile is strengthening after consolidating at $1,270 an oz for a few days and is now trading at $1,285 an oz. In Mumbai, the price opened on Wednesday at Rs 29,575 per 10g for standard gold, up by Rs 180 per 10g from Tuesday's close.