Gold Im­port Duty can be Hiked 3% to Rein in CAD

Rise in im­port duty can give a fil­lip to in­vest­ment in sov­er­eign gold bonds

The Economic Times - - Finance & Commodities - Su­tanuka Ghosal & Ram Sah­gal

Kolkata | Mum­bai: A bid to pare non-es­sen­tial im­ports to con­tain cur­rent ac­count deficit (CAD) can boost im­port duty on gold by 2-3% from 10% and give a fil­lip to in­vest­ment in sov­er­eign gold bonds in place of phys­i­cal de­mand in In­dia.

“The best op­tion for gov­ern­ment in the present sce­nario is to in­crease the im­port duty on gold by 2%. The ad­di­tional duty of 2% col­lected on phys­i­cal gold can be utilised to re­pay sov­er­eign gold bond on ma­tu­rity to in­cen­tivise cus­tomers who have in­vested in gold bonds. By do­ing so, in­vest­ment de­mand for gold will shift to sov­er­eign gold bond,” said Suren­dra Me­hta, na­tional sec­re­tary, In­dia Bul­lion & Jew­ellers As­so­ci­a­tion (IBJA). Whil e in­dus­try watch­ers feel the rein­tro­duc­tion of Pre­ven­tion of MoneyLaun­der­ing Act (PMLA) for gold could check gold de­mand, bul­lion deal­ers and jew­ellers feel

t hat with elec­tions around the cor­ner, the­gov­ern­ment­maynot­in­tro­duce itandthis­couldaf­fect­gold­de­mand in the up­com­ing fes­ti­val season.

The PMLA guide­lines, which re­quired jew­ellers to keep records of cus­tomers’ Per­ma­nent Ac­count Num­ber for trans­ac­tions above ₹ 50,000, had a dras­tic ef­fect on gold sales last year as buy­ers were hes­i­tant to pro­vide the PAN de­tails.

Gold traders like Ke­tan Shroff, man­ag­ing di­rec­tor, Penta Gold, a com­pany listed on NSE’s SME seg­ment, said the gov­ern­ment could con­sider al­low­ing all gold im­ports against let­ters of credit rather than on con­sign­ment ba­sis as a method for de­ferred dol­lar pay­ments. “The gov­ern­ment could prob­a­bly in­crease im­port duty by 2-3 odd per­cent but I think an ex­pe­di­ent way to stem dol­lar out­flow un­til a more last­ing so­lu­tion is found is for gold im­por t s a g ai nst SBLCs(standby let­ter of cred­its)/ LCs of six months to one year du­ra­tion rather than on

All’s Not con­sign­ment ba­sis through banks, where im­me­di­ate dol­lar pay­ments are made,” Shroff said.

Through­such­doc­u­men­tary­credit, the gold sup­plier’s bank dis­counts the LC pro­vided by the buyer’sbankatLi­bor­plus1%.After­six months or a year, the sup­plier’s bank re­ceives pay­ment from the buyer through his/her bank. This de­fers the out­flow of dol­lars which cur­rently hap­pens un­der the con­sign­ment route where the nom­i­nated bank col­lects money up­front from the buyer and re­mits it to the sup­plier - bul­lion bank - for a fee. How­ever, Shekhar Bhan­dari, busi­ness head (global trans­ac­tion bank­ing & pre­cious met­als) at Ko­tak Mahin­dra Bank said a more op­ti­mal so­lu­tion rather than chang­ingth­e­for­matof pay­men­tor rais­ing im­port duty from 10% would be ra­tio­nal­is­ing the duty struc­ture on raw gold or dore, which he says makes up 55% of the gold In­dia im­ports. The duty on dore is 9.35% against 10% on bul­lion bars im­ported by banks on con­sign­ment ba­sis. Cheaper gold in­creases de­mand and this in turn widens the CAD. He said duty on dore should be brought on a par with that on di­rect im­ports to re­duce pres­sure on CAD. Re-in­tro­duc­tion of Pre­ven­tion of Money Laun­der­ing Act (PMLA) could check gold de­mand

Govt could con­sider al­low­ing gold im­ports against let­ters of credit rather than on con­sign­ment ba­sis

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