The Reserve Bank of India (RBI) on Wednesday liberalised gold import norms under the 80:20 rule. Though the ratio hadn’t been changed, star and premier export houses had been allowed to import the commodity, while banks and nominated agencies had been allowed to provide gold for domestic use as loans to jewellers and bullion traders, said a notification issued by RBI.
The new norms come into force with immediate effect.
Under the 80:20 scheme, the government had, on August 14 last year, allowed nominated agencies to import gold on the condition that 20 per cent of the import would be exported.
It is expected Wednesday’s move will increase monthly average gold import from 25-30 tonnes to 50-60 tonnes. Also, jewellers’ cost of funds could decline with the resumption of gold loan facilities.
The spot delivery premia for gold in the market here fell from $120 an ounce a fortnight ago to $80/ounce on Wednesday. Speculation on liberalisation in gold import had gained ground through the last few days, after the Bharatiya Janata Party secured a majority in the Lok Sabha elections.
It is likely the spot premia could fall to $20 an ounce in the next two-three weeks. Considering the rupee’s current value and international gold prices, gold could see an additional four-five per cent fall in prices. On Wednesday, the commodity closed at Rs 28,725/10g in the market here. The RBI’s notification on import relaxation came after the market closed.
On the Multi Commodity Exchange, gold futures expiring in June fell by Rs 400/10g to trade at Rs 27,853/10g five minutes after RBI uploaded the notification on liberalising gold imports. A broker active in the futures market confirmed in the last few days, some large traders had built short positions in gold on expectations of import relaxations.
The RBI announcement said the decision to liberalise gold import norms had been taken in consultation with the Centre.
Mohit Kamboj, president, Indian Bullion and Jewellers Association, said, “Now, gold import will happen according to demand and jewellers will start getting gold on loan at four-five per cent interest, against the existing condition of making full payments for the gold bought. This will save huge interest cost for them.”
According to the RBI notification, star/premier trading houses can import an initial tranche of gold under this scheme, based on the highest monthly import during the 24 months prior to RBI’s notification dated August 14, 2013, subject to a cap of two tonnes. An analyst said in 2012, the market share of these trading houses in total gold import was 12 per cent, which rose to 25 per cent last year.
“At that rate, subject to these star/premium houses exporting 20 per cent of the imported quantity and the impact of the other measures, the import entitlement will rise to about 130 tonnes, replacing unofficial gold by a large extent,” said Sudheesh Nambiath, precious metals analyst, GFMS, Thomson Reuters. The World Gold Council had estimated in 2013, 200 tonnes of gold was smuggled into India. The analyst said as long as the duty was very high, smuggling wouldn’t stop, but an improvement in supply through the official route would improve. He added as investment demand for gold had fallen, attractiveness for smuggled gold, too, would decline.
Currently, average gold import a month is about 25-30 tonnes; this could well rise to 60 tonnes.
Vipul Shah, chairman of Gems and Jewellery Export Promotion Council, said, “Export of gold jewellery has already shown signs of an improvement. With today (Wednesday)’s liberalisation, flow of gold to small exporters will also improve, as new players such as export houses have been allowed to import gold.” He estimated the recent move to have an impact of at least 10 tonnes per month on monthly import and spot delivery premia to fall below $20 an ounce.
In its notification, RBI has also prescribed a few procedures for export houses. These include providing an import plan.
Banks importing gold will find it easy to import for domestic use, subject to 20 per cent export. While gold loans cannot be more than the allowed sale limit in the domestic market, after meeting export requirements, they will be able to import gold for the domestic market on a consignment basis and give this to jewellers as loans.
THE PICTURE NOW
- Export houses allowed to import
- Banks can lend the yellow metal to jewellers
- Spot premia will crash; price on MCX fell sharply soon after announcement
- As gold import rises, smuggling of the metal will fall