Round-tripping of gold estimated at 114 tonnes till October 2018

According to GFMS analysis, direct imports by exporters have jumped to 164 tonnes in 2018 so far, as compared to just 12.2 tonnes in the previous year

Despite the government's ban on export of items made of gold above 22 carat in August last year, round tripping is still prevalent. In the first 10 months of 2018, 114 tonnes of gold is estimated to have been exported under round tripping — process of exporting gold jewellery, usually to the same group company, who melt it and convert it into gold bars. These bars are then imported by India without much benefit to country's export basket.
 
Jewellery exports, 24 carat gold coins, were largely routed for round tripping. To prevent this, the Centre scrapped the nominated agency certificates of four- and five-star export houses. However, despite the closure of one route for round tripping, many others have mushroomed.
 
According to GFMS analysis, till now, direct imports by exporters have jumped to 164 tonnes compared to just 12.2 tonnes last year. This suggests the traders, who were previously importing under the nominated agencies category, are now importing that gold directly.
 
According Debajit Saha, senior analyst, precious metals demand, GFMS Thomson Reuters, “round tripping means the same gold exported earlier returns to the system by changing its form in various levels. Bit, it creates the opportunity for exporters to source funds at a much cheaper cost in one hand (in form of export finance), which they divert to some other business. At the same time, it is used to inflate the balance sheet to maintain star export house status and other benefits.

 
Till October this year, the import of gold coins or medalians has fallen sharply, as it was largely used for round tripping. In the first 10 months of 2018, the total exports of medallion was only 8 tonnes as compared to 79 tonnes in the year-ago period.
 
India’s gold jewellery exports, however, increased 56 per cent during the quarter under review as compared to the year-ago period. However, in November, the gold jewellery exports, which has helped the overall exports look positive, has dipped with a fall in cut and polished diamonds.
 
According to data compiled by the Gem and Jewellery Export Promotion Council (GJEPC), the exports of cut & polished diamonds, and gold jewellery, stood at $1.56 billion and $867.59 million, down 12.06 per cent and 9.06 per cent, respectively.
 
According to Colin Shah, vice chairman, GJEPC, “Closure of G&J units during Diwali, hike in import duty on CPD from 2.5 per cent to 5 per cent, and then to 7.5 per cent, levy of integrated goods and services tax (IGST) on reimport consignments exported earlier for overseas exhibition or export promotion tours on consignment basis, and overall credit crunch, have resulted lower exports.”

 
The taxes were increased to reduce non-essential imports when the rupee was falling sharply. IGST on return consignment resulted in decreased participation of exporters in foreign exhibitions, tours, etc.
 
Shah added, “Thus, in spite of an optimistic growth environment in the international market, India’s gem and jewellery manufactures or exporters could not reap the benefit due to domestic challenges. The GJEPC urges to have conducive environment for the manufacturers and exporters in terms of reduction or removal in duties such as BCD and IGST, among other credit norms.”

Defining terms

• Round-tripping refers to exporting gold jewellery, usually to same group company that melts it and converts it into gold bars, which are then imported back

Benefit

Exporter gets cheap credit against exports. When importing group entity remits proceeds, this money is paid back

Magnitude

• Last year, 135 tonnes of gold moved out of the country via this route
• Govt took measures to ban export of 24 carat gold coins/medalians and jewellery, which were primarily used for this purpose. However, round-tripping continues, although the govt action has had some impact