In Nov, only 16% of total gold imports was duty-free for exports

The proportion of gold used for exports in total imports of the yellow metal falling for two months

The share of gold used for export purposes in total importsof the yellow metal has fallen sharply in the past two months. The gold that is imported for exports is duty-free.

 

Exporting imported gold was a preferred option for gold traders and export houses when the demand for the yellow metal was at its ebb during 2016. However, after Diwali, due to existing domestic demand, which continued in November, when the government announced its demonetisation move, the share of such exports has fallen sharply from that in the September quarter, which had seen 55 per cent of imported gold going out of the country, either as genuine value-added jewellery or as part of round-tripping. 

According to data from GFMS Thomson Reuters, duty-free import of the yellow metal for export as a proportion of total gold imports fell to just 18 per cent in October and further to 16 per cent in November. In December, according to market sources, overall imports are estimated to be lower at 35 tonnes amid less domestic demand. 

Since February, bullion trade has been lukewarm and average monthly import around 30-35 tonnes, of which 40-50 per cent  was being exported. Even while the domestic demand was low, smuggling of gold was estimated at around 15 tonnes a month. Further, distress selling by illegal importers led to discounts on the yellow metal. 

Exporters and export houses bought gold at a discount of 3-4 per cent and exported it because the discount was marginal in the export-destination countries.  The market was also either quoting marginal premiums or small discounts and export's share in total official import declined in October. The trend continued in November when demand was good, both because of the marriage season and possibly for converting black money into white in the post-demonetisation period.

In October, the Director General of Foreign Trade had also imposed restrictions on gold exports by not permitting exports from special economic zones to be calculated for star trading house status. However, exporters did continue to export whatever quantity of the yellow metal they could from export-oriented units.