Bullion Premia Dips In Ogl Era

Within a few months of the introduction of the open general licence (OGL) for bullion, OGL imports have virtually replaced supplies under the non-resident Indian (NRI) and special import licence (SIL) schemes. Moreover, local premiums have fallen sharply to as low as 10 per cent in December 1997.

In India, as part of the liberalisation of the import regime for gold and silver announced in October 1997, permission was granted to eight authorised banks (including three foreign banks and three state-owned trading agencies) to import the precious metal under an OGL.

The new regime allows importers to bring in unlimited quantities of silver bullion on payment of an import duty of Rs 500 per kilogram in addition to the landed cost. Under OGL, it becomes possible to import and supply silver to the domestic market at a very low premium over the international price.

This was in contrast to the NRI and SIL schemes introduced in 1992 and 1994 respectively wherein importers had to pay heavy costs (the cost of couriers in the former and cost of the import licence in the latter) in addition to the import duty.

Another important development that had a major influence on Indian bullion imports was the price of silver in the international market. Silver prices were weak in the first half and there was a sharp recovery from July onwards.

For 1997 as a whole, it is seen that imports were little changed in real terms from the levels recorded in the previous year.

But, bearing in mind the sharp drop in international prices in the fourth quarter, this may raise doubts about the future of Indian demand especially as there were few signs of a bounce-back in the first two months of 1998, says the World Silver Survey 1998.

The survey adds that the maintenance of prices well above the $6 level has certainly been a factor in this.

However, it is noticable that, as prices weakened in March, there was a significant resumption in imports.

However, it can be seen that in real terms, local prices in the first quarter of 1998 are still well below the levels seen as recently as early 1996 when imports were running at around double the level seen in the final months of 1997.

This suggests that the recent weakness of imports has been, at least in part, a reaction to the enormous inflow of silver up to the third quarter of last year.

Another factor lying behind this development has been the relative movement of gold and silver prices which encouraged many traditional buyers of silver to switch to gold in the second half of 1997.