Govt mulling changes in FTA with Thailand to check gold imports

Traders convert gold into ornaments in Thailand, then import them to India to evade the 4% duty on gold imports

Faced with over 10-fold increase in gold jewellery imports in the first nine-months of the current financial year, the government is looking to revisit a clause in the free trade agreement (FTA) between India and Thailand.

Under the clause, gold jewellery would attract only one per cent of import duty from Thailand, compared to 10 per cent from other origins. There are reports that traders convert gold into ornaments in Thailand and then import them to India from that country to evade the four per cent duty on normal gold imports. Total gold jewellery import into India from the three major originsThailand, Italy and Dubaiwas estimated at $4 billion (Rs 21,760 crore on Thursday) in the first nine months of the current financial year against $400 million in the corresponding period last year.

While no official gold jewellery import figure was reported by government agencies, traders estimate over 50 per cent of the total gold jewellery imports to India with an estimated value of Rs 12,000 crore came through Thailand.

GOLD ON OFFER Quarter-wise gold supply (tonnes)
Period	Imports	Recycled gold
Q4-2010	281	25
Q1-2011	306	10
Q2-2011	301	10
Q3-2011	205	15
Q4-2011	157	23
Q1-2012	228	25
Q2-2012	153	30
Q3-2012	223	34
Source : World Gold Council

Although gold ornaments are imported to India from many other countries, import from Thailand has witnessed a multi-fold jump so far this year affecting the Indian jewellery manufacturing industry badly. To protect the domestic industry, we have recommended the government either treat Thailand at par with other origins which would attract 10 per cent uniform import duty or ban jewellery imports from Thailand, said Sanjay Kothari, vice-chairman of the Gems and Jewellery Export Promotion Council.

Cheap imports of gold jewellery from Thailand were rising as they offer clear margins for traders. Reports say traders can also melt the imported jewellery into normal gold to take advantage of the three per cent duty difference.

Amid fear of the clause getting misused as Thailand is neither a major producer nor a manufacturer of gold jewellery, the government mandated at least 20 per cent of value addition in ornaments imported from the Asian country. But Indian traders import gold ornaments originated largely from China through virtually negligible value addition.

Late last month, the Directorate of Revenue Intelligence had seized 53 kg of gold jewellery worth Rs 14 crore imported by two Surat-based jewellersAmar Jewellers and C B Brothersfrom Thailand through the Surat Heera Bourse in which hardly three per cent of value addition was discovered.

The government in the Union Budget 2012-13, raised import duty on gold to four per cent from the existing two per cent, quadrupling thereby, overall customs duty in three months ending March 2012.

There has been a massive escalation in import of gold ornaments since last year which needs to be curbed. The government of India is benefiting Chinese jewellery manufacturers at our cost. We have urged the government to withdraw the gold import clause from FTA guidelines with Thailand, said Bachhraj Bamalwa, chairman of All India Gems and Jewellery Trade Federation.

Meanwhile, the government on Tuesday indicated the revision of guidelines for special economic zones (SEZs) under which export-oriented units get massive tax rebate for exporting jewellery. A major portion of gold jewellery import comes through SEZs, which is very difficult to bring to notice, said industry veteran Ashok Minawala.

The government has eventually set a target of $38 billion worth of gold imports for the current financial year compared to $58 billion during the previous year to rein in its current account deficit and encourage money tied up in gold back into the economy. Traders estimate 45 per cent decline in gold imports at 550 tonnes in 2012 compared with 967 tonnes in 2011.