Move to ease gold import norms unlikely to widen CAD

It had earlier eased gold import norms by allowing select trading houses, in addition to already permitted banks, to procure the precious metal to boost exports

The Reserve Bank's move to ease gold import norms is unlikely to exert upward pressure on the current account deficit, industry body Assocham today said.

The RBI had earlier eased gold import norms by allowing select trading houses, in addition to already permitted banks, to procure the precious metal to boost exports.

"Assuming a monthly average gold import of 40 tonnes for first quarter of 2014-15 and 80 tonnes for the remaining three quarters, total imports for the current fiscal will tantamount to 840 tonnes vis-a-vis 586 tonnes in 2013-14.

"While the 80-20 rule would still put some downside pressure on our estimate, we believe the impact would be offset by the likely upside risk that phased normalisation of custom duty could bring-in," Assocham President Rana Kapoor said.

The central bank had tied imports with exports and prescribed a 20:80 formula, which was available to select banks only and other entities were barred from importing the yellow metal.

Under the 20:80 scheme an importer has to ensure that at least one-fifth, or 20%, of every lot of imported gold is exclusively made available for the purpose of exports and the balance for domestic use.

India's current account deficit narrowed to 1.7% of GDP in FY14, from 4.7% ($87.8 billion in FY13), while in the March quarter it shrunk massively to 0.2% of GDP, which is a lowest since March 2009.