The government is concerned that the trade gap could worsen again and the currency could weaken as the U.S. Federal Reserve looks like it will start reducing its economic stimulus soon.
“There is no proposal to relax restrictions on gold imports from now,” said a finance ministry official person part of the team is deciding on restrictions on the import gold. He refused to be identified because he is not authorized to talk to the media.
“The issue has not considered as a U.S. decision to close its monetary stimulus could arrive anytime (and) that with potentially serious repercussions on the rupee.”
Indian rupee reached a record low by late August because of concerns about the financing of the record trade deficit and capital outflows driven by the signaling that the Fed will soon begin rolling back its USD 85 billion purchase of monthly bond .
The government of India and the central bank adopted a number of restrictions on gold imports – in hopes of relieving pressure on the currency – second most expensive item in the import bill of India.
The import duty for gold rose to a record 10 percent, and the volume of imports was strapped to sagging exports, leaving the market short of supplies.
Gold imports fell to 24 tonnes in October from a record 162 tonnes in May, which helps relieve current account deficit (CAD). Rupee has also rebounded by 10 percent from their lows.
That has led to gold industry in India to pressure the government to back their tough rules.
“Now, as the CAD is under control, we are asking it to withdraw the 80/20 rule, as curbs will not help the industry,” said Haresh Soni, president of the All India Gems and Jewellery Trade Federation, which representing over 300,000 jewelers.
The rule of 80/20 dictates that 20 percent of all imported gold has to be re-exported. “We are also asking the government to cut the import duties to 2 percent as gold smuggling has increased,” Soni said.
Hurt by the harsh rules imposed this year, India dealers and individual customers have been fanning out throughout Asia to buy gold and sneak back into the country. But Some analysts said that the rules must be left in place.
“We should not go for a relaxation of the restrictions on gold imports at this stage in time. I would expect to see if gold imports decrease sustainably,” said Madan Sabnavis, chief economist at CARE Ratings local rating agency .
India will hold general elections in May, which has added to the speculation that government may make rules to appease certain sectors of public opinion.
“Even from an view of the elections, if the government wants to cut the restrictions, they are still three or four months away,” the source said the finance ministry.
Further official involved in policy formulation gold, said the central bank and governance must wait longer to see what impact the restrictions.
“Indian importers never have been restricted and that is why they are encountering this very painful.We just saw the impact for one quarter, we should wait until March at least in order to understand the full impact,” said the policymaker.
Reported News Source: Reuters India