Gold imports virtually on halt

Central bank likely to clarify gold policy in a day or two, confusion in earlier policy resulted in acute shortage of gold

The reserve bank of India is likely to clarify on gold import policy announced last week in a day or two as it has created lots of confusion in the market and among importers of yellow metals.

The confusion has created acute shortage of gold in physical market. Due to confusions creted by the RBI's import policy announced on 22 july, imports of yellow metals have come virtually on halt. This has created major shortage.

RBI is expected to clarify confusions soon. A source said that clarification may come even by today evening. The shortage of physical gold along with falling rupee has resulted in gold trading above Rs 29,000 per 10 gram today in Mumbai.

While linking gold import to exports in fact the reserve bank of India had reopened import conventional route for gold. The central bank in its new gold import policy announced last week had said that 20% of all gold imports should be for providing gold to exporters.

However, while saying this it had removed all restrictions on import through consignment route and also removed condition of 100% cash margin for import against letter of credits. This was expected to increase import in near term while linkage with exports was supposed to limit imports in medium term.

However the policy itself created so much confusion. Jewellers said that who will have to ensure export part? Importing jeweller or an importing agency? Because demand segment that is jewellers who caters to domestic market and exporters by nature deals in different market and are different in most cases. Even importing agencies were not sure on this.

Premier trading houses were told that they cannot import gold for domestic market. Many of these houses also have licence to import gold but they were confused if they are not allowed to import gold despite having licence than what will be the status of the licence?

India’s genuine export of gold was around 50 tons last year. Going by this yardstick new policy will only allow import of 200 tons of gold which is just one third of total domestic demand. An analyst said that the linkage of import with export of gold would have led to round tripping of gold or export of gold without much value addition.

That was the only way by which domestic demand could have been made. However, banks were confused about who will monitor gold sold to exporters is exported or not as RBI has not said anything about this monitoring.

Importer of gold were told by the RBI that part of imported gold shall be kept in bonded warehouse and till gold meant for export gets actually exported than only the gold kept in bonded warehouse can be taken back. However there are not enough such warehouses where gold can be stored, customs have them but they are for general goods and precious metals cannot be stored there.