Gold and note ban: How black money turned white, then yellow

Gold imports in January-March 2017 were the most since the same quarter of 2013

January-March 2017 has been the best fourth quarter in terms of gold imports since early 2013.

Gold imports in the last quarter stood at 230 tonnes, and more than 100 tonnes is estimated to have been imported in March alone.

But for the blip in December, gold imports have gone up significantly following the government’s announcement of demonetisation, after being subdued for the first seven months of 2016-17.

Between April and October 2016, only 264 tonnes of gold was imported, while in the next five months, imports went up to 360 tonnes. 

The rise in the import bill in the last quarter is also because of unofficial imports falling to very low levels after demonetisation and rising prices of gold internationally, say experts. 

After Prime Minister Narendra Modi announced banning old Rs 500 and Rs 1,000 notes on November 8, 2016, several black money holders bought gold with the old currency after paying a high premium, and this resulted in an import of 100 tonnes of gold in November. Imports moderated to 30 tonnes in December as the government began raids on jewellers indulging in such conversions, while in January there was a revival and imports climbed to 48 tonnes.

With the general consensus that the yellow metal prices would not go down much, imports have been significantly better in February (80 tonnes) and March. 

In April too, the demand is expected to be strong. Shekhar Bhandari, senior executive vice-president, Kotak International Banking, said, “The demand for gold continues to be good on account of festivities as well as the marriage season. Also, the overall mood seems more positive, which is reflecting in demand. I expect demand to continue for April.” 

The Hindu festival of Akshaya Tritiya, which falls on April 28, is considered auspicious for gold buying.

However, imports increase ahead of a revision of the tariff value for gold, based on which the customs duty is charged, irrespective of the import price. The government decides the tariff value for several commodities, including gold.

When gold prices are rising, importers prefer to release their imported gold a few days ahead of the announcement of the tariff value, which takes place at the beginning of the first and the second fortnight every month. 

Sudheesh Nambiath, head for precious metal, India and South Asia, GFMS Thomson Reuters, said, “In a rising price trend with gold import tariffs set twice a month and dollar-rupee rates set on different dates, there is bound to be speculative interest in addition to genuine demand.”  

He added that imports rose towards the end of the month, just a day or two before tariffs were reset. 

A banker dealing in gold imports confirmed the sharp increase ahead of increase in the tariff value and said that, “The presence of Free Trade Warehousing Zone in Chennai has made it easier to clear gold in a day and importers don’t have to wait for three days like before.” 

Another Mumbai-based banker expects the higher import trend to continue this month as jewellers order gold ahead of Akshaya Tritiya.