RBI creates new gold import hurdle

As announced earlier, consignment imports restricted; jewellery trade fears rise in costs, especially for smaller entities

The Reserve Bank of India (RBI) on Monday issued its promised circular restricting import of consignment gold this afternoon, even as jewellers were doing brisk business on Akshaya Tritiya demand.

The aim , the circular reiterated, was "to moderate the demand for gold for domestic use". Only the genuine needs of gold jewellery exporters would be exempt, it said, on the same lines announced in its recent annual policy statement.

When gold is imported on a consignment basis by banks permitted to do so on behalf of buyers, the latter do not have to fund these purchases themselves. When they sell the gold, payment to the exporting bank is made on that day and on that day's price. If gold cannot be sold during 30 days, it can be returned unsold; in India, however, this rarely happens. RBI believes banks push sales by creating "artificial demand", encouraging "unnecessary" import.

On Monday's data announced by the commerce ministry said gold import went up 138 per cent to $7 billion in April. This is thought to have triggered the early announcement from the central bank; it had earlier indicated the new rules would be notified towards the end of this month.

India imported 1,015 tonnes of gold in 2012-13, said RBI. Industry sources said 65-70 per cent of this is imported on consignment basis.

 

With RBI banning consignment imports for domestic use, jewellers will have to place orders with banks by paying the margin money, banks would import only after this is done.

As reported earlier, the bullion trade is opposed to this move. "This will increase the cost of gold for small jewellers," said Haresh Soni, president of the Gem and Jewellery Trade Federation. For importing gold, banks will wait and compile the order till the quantity becomes commercially viable to import. Smaller jewellers will have to wait, as their orders are only of a few kilos each. Also, in waiting for gold to arrive, they will have to pay margin money, fulfill formalities and take a price risk till the gold arrives. This will increase costs for them, is the criticism.

A veteran bullion analyst said if this policy remained in force for a long time, smaller jewellers would go out of business or remain dependent on large jewellers. Also, he said, banks will start charging big premiums from jewellers, especially the small ones, as supplies will be restricted.

A source close to one of the banks importing gold on a consignment basis said major banks might start storing gold in vaults in Dubai and like places where storage charges are less than here and import can be speedily done. There would, then, have to be logistic tie-ups for storing, importing, etc.