Gold policy announcement delayed
The announcement of a comprehensive gold policy as proposed by the Union finance minister in his Budget speech on February 1 has been further delayed.
A panel set up by the Niti Ayog and headed by a principal adviser in it, Ratan P Watal, had given a report on this to the finance ministry on February 22. In March, a ministry official had said the policy would be announced in April.
However, the Nirav Modi fraud case and then changes in portfolios of officials in charge of gold policy in the ministry had delayed the finalisation.
Sources said another reason is that the Watal report advocates less of regulatory restriction on the jewellery industry, and this had not been liked in policy making circles.
The committee report aims to double the gold industry’s contribution to Gross Domestic Product from 1.3 per cent in 2016 to to 2.53 per cent by 2022, beside a doubling of export; also, more jobs and foreign investment. These, it said, would need the implementation of its recommendations.
However, the finance ministry is not enthused at some of these. It is felt by some, for instance, that a proposal to liberalise gold loans will mean easy money flow to jewellers at a cost lower than what farmers get and a cut in paid taxes. They have pointed to recent events which showed the sector can misuse concessions.
One proposal is to cut import duty on gold to a level where “unofficial import” loses attraction. The total tax on gold is now over six per cent, making it attractive for smugglers; with the goods and services tax, it is 13 per cent. However, the ministry feels reducing this by half will have huge fiscal issues and no guarantee of removal of the underground economy in this regard.
Another suggestion is to raise the margin between the tariffs on fine gold and unrefined gold, to promote import of the latter; also, for banks to import from Gulf countries, where discounts are available. The objection is that a lower tariff on dore will encourage money laundering, with refineries passing on some of the benefits to dealers abroad, as had happened in the past. And, that import from Gulf nations could mean import of unethically mined gold.
And, that much lower duty on dore could lead to conversion into gold, exporting it and converting back to dore for import, a type of round-tripping.
The recommendations include giving easier gold metal loans to jewellers and raising the 180-day limit of a loan to a year. A banker, on condition of anonymity, said: “At a time when one fears an increase in bad loans and money stuck due to fraud in the jewellery industry, implementation of these recommendations is not prudent for banks.” Banks prefer lower tenure and valuing of loans in rupee terms to enable quicker revaluation in line with market values.
Sureendra Mehta, secretary, Indian Bullion and Jewellers Association, said: “The report will transform the gold market. However, some of the industryfriendly suggestions, as on gold metal loans and hallmarking might not be acceptable to other regulators like the Reserve Bank and the Bureau of Indian Standards (BIS).” The report has said BIS’ powers in this regard should be curtailed and it should permit authorised centres and refineries to hallmark 24-carat coin. And, that mandatory hallmarking be enforced only after an adequate number of centres and other infrastructure is in place.