India Gold Import Curbs Review in March on Deficit Control

Jan 27, 2014 6:04 am ET

(Adds prices in fifth paragraph.)

Jan. 27 (Bloomberg) -- India can review gold import curbs by the end of March if Asia’s third-largest economy controls the current-account deficit, said Finance Minister Palaniappan Chidambaram.

“We can revisit curbs on gold imports by end of the year but let me hasten to add that it will happen only after we get a firm grip on the current-account deficit,” Chidambaram said in New Delhi today. Shipments rose in December from a month earlier, Revenue Secretary Sumit Bose said at the same event, and confirmed that the minister was referring to the financial year ending March 31.

The rupee has rebounded about 9 percent from a record low against the dollar in August after the government raised the tax on imports three times in 2013 and linked purchases to re- exports. The government is seeking to trim imports to 800 metric tons in the financial year ending March from 845 tons a year earlier and the restrictions helped cut the deficit in the quarter ended September to the lowest level since 2010.

The deficit, the broadest measure of trade, tracking goods, services and investment income, will narrow to below $50 billion this fiscal year from a record $88 billion in 2012-2013, according to Economic Affairs Secretary Arvind Mayaram. The shortfall was $5.2 billion in July through September, compared with $21.8 billion for the prior quarter, the Reserve Bank of India said Dec. 3.

Increased Smuggling

Gold for immediate delivery in London traded at $1,270 an ounce at 4:06 p.m. in Mumbai, while futures on the Multi Commodity Exchange of India Ltd. rose 1 percent to 29,822 rupees per 10 grams. The rupee traded 0.9 percent lower at 63.2250 per dollar, after touching 63.3050 earlier, the lowest since Nov. 14, according to data from local banks compiled by Bloomberg.

The clampdown on imports has spurred smuggling, and between 1 tons and 3 tons of gold is being illegally brought in every month, Chidambaram said. Pakistan imposed a 30-day ban on gold imports last week to check a surge in smuggling that’s spurred by a steep increase in import duty in a “neighboring country,” according to an official statement.

The All India Gems & Jewellery Trade Federation expects the government to ease restrictions that require them to set aside 20 percent for re-exports as jewelry by the end of March, Bachhraj Bamalwa, a director, said Jan. 21. Sonia Gandhi, the president of the ruling Congress party, wrote a letter to the Commerce Ministry seeking removal of the curbs, the CNBC Awaaz television reported on Jan. 23.

Consumption in India, which imports almost all the bullion it needs, accounted for about 20 percent of global demand in 2012, according to data from the World Gold Council.

--Editors: Thomas Kutty Abraham, Jake Lloyd-Smith