India eases gold curbs, allows import by private banks

The government has allowed five private sector banks in the country also to import gold, signalling an end to months of tough restrictions on import of the precious metal amidst a spike in its prices in the international market and a consequent ballooning of the country's trade deficit.

The curbs, however, resulted in large-scale smuggling and loss of revenue to the government, as jewellers and the gold trade looked for ways to circumvent import curbs on the yellow metal.

For India, the world's second-biggest consumer after China, the easing of import curbs could boost gold supplies and bring down premiums for the metal. Industry officials see it as a significant step towards easing of tough curbs on the metal imposed last year.

Reports quoting banking industry sources said the Reserve Bank of India (RBI) has now also allowed gold imports by HDFC Bank, Axis Bank, Kotak Mahindra Bank, IndusInd Bank and Yes Bank.

Earlier, only six banks and three trading agencies, all of them state-run were allowed to import gold under an import against export plan that had facilitated export of gold or jewellery in the past three years.

The Reserve Bank of India had enforced the so-called 80/20 rule in July, making it mandatory to export a fifth of all gold imports.

The RBI has now permitted gold imports within prescribed limits by the private banks even though they were not part of the jewellery export measures initiated by the government in the past three years.

The move is expected to double monthly imports of the metal. There was, however, no RBI notification on the policy easing, which was mainly aimed at curbing gold smuggling.

Gold imports to India had plummeted to around 20 tonnes per month from the peak levels of around 70 tonnes per month in the wake of import restrictions.

Gold, the biggest import after oil had pushed the current account deficit (CAD) to a record high in the year ended March 2013.

A spurt in smuggling activities had forced the customs authorities to tighten baggage rules, mainly for passengers arriving from the Gulf countries.

The authorities apprehend that most of the gold is brought unauthorisedly into the country by smugglers using unwary passengers as a conduit. Some smugglers also hire eligible passengers to import gold on their behalf.

Eligible passengers are allowed to be import gold up to 1kg by paying 10 per cent customs duty in foreign currency.

Eligible passenger include persons of Indian origin or an Indian returning to India after a period of 6 months of stay abroad.

While the restrictions on gold imports have helped reduce gold imports and CAD significantly, it has given rise to smuggling to meet the pent up demand for gold.