India "Importing As Much Gold as Possible" Ahead of Proposed Restrictions

IMPORTS of gold bullion into India, traditionally the world's biggest gold buying nation, look set to top 100 tonnes for the second month in a row, as banks and jewelers look to import ahead of restrictions proposed by the central bank, one New Delhi-based industry insider said this week.

Rajesh Khosla, managing director at MMTC-PAMP India, said the industry is trying to get ahead of proposals made last week by the Reserve Bank of India to only allow banks to import gold on a consignment basis – where the gold is shipped but the supplier retains ownership – where that gold was to meet the needs of gold jewelry exporters. 

India's gold imports, which totaled 860 tonnes in 2012, have been blamed for exacerbating the country's trade deficit. Gold and silver was India's second biggest import item last year behind oil.

"[Gold] imports this month look as good as in April as everyone is trying to import as much as possible before the RBI guidelines are issued," said Khosla.

The RBI's proposed restriction "will lead to lower supply of gold" within India says Suvanker Sen, executive director at Senco Gold, a leading jewelry chain in eastern India.

"While demand for jewelry will not be affected, there is possibility of investment demand getting affected."

"Jewelers will find it difficult to get gold," says Bachhraj Bamalwa, former chairman of the All India Gems & Jewellery Trade Federation, who says that the premium charged to jewelers by banks rose last month to $12 an ounce – compared to $2 an ounce previously – as a result of bullion shortages.

"If these premiums increase further, there will be enough incentive for smuggling in gold, as the import duty is 6% and 1% VAT (value added tax) is already applicable."

The impact of the RBI's proposed restriction "is expected to be transitory" according to a report from investment bank UBS.

"The net impact on Indian gold imports as a whole would very much depend on how quickly affected banks can adapt to the new requirements and the capability of others to fill any gaps this might create in the market... and overall import volumes would ultimately be determined by underlying demand."

UBS said last week that Indian demand for gold was "very strong", adding that its index of physical flows into India was five times higher than its 12-month average.

Imports by India breached the 100 tonnes mark last month following gold's sharp price drop, which was followed by a global increase in physical gold demand. The festival of Akshaya Tritiya, seen as an auspicious occasion on which to buy gold, is celebrated next Monday and is also cited as a factor behind recent strong demand.

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