The government's latest curbs on imports of gold jewellery are unlikely to have a significant impact as they are introduced to plug existing policy loopholes, according to market participants.
On Wednesday, the Directorate General of Foreign Trade imposed curbs on imports of certain gold jewellery and articles, amending imports of unstudded jewellery and other articles made of gold from 'free' to 'restricted.' However, these restrictions don't apply to imports subject to the India-UAE Comprehensive Economic Partnership Agreement tariff rate quota, according to a government notification.
What Do These Curbs Mean
The recently imposed curbs on imports of certain gold jewellery and articles mean that importers will require a licence from the government to import the said goods, and there won't be 'duty-free' imports.
Though market participants see this as a move against alleged smuggling and increased imports from Indonesia, analysts say the government is merely plugging the 'loophole' in the policy. It has nothing to do with the grey market operations, they told BQ Prime.
"There is nothing alarming in the notification, with the government merely plugging an existing loophole," said Colin Shah, founder and managing director of Kama Jewellery and former chairman of the Gem and Jewellery Export Promotion Council. It was a policy loophole where certain types of finished gold jewellery could be imported duty-free, causing certain importers to import them from Indonesia, Shah said.
While gold was already a restricted item, gold jewellery was not, so some lines of jewellery have come under this now, said Sabyasachi Ray, executive director of GJEPC. "Restriction doesn't mean that it is banned. It merely means a controlled import," Ray said. The government has brought these laws to see that item codes are coded correctly and the right quotation is imposed on goods, he said.
Gold imports declined 39.3% year-on-year to $4702.5 million during the April-May period compared to the previous $7749.91 million a year ago, according to trade data released by the government. The decline was largely attributed to the import duty.
The government's move is unlikely to have been a step towards curbing the trade deficit, Ray said. India is a strong force in jewellery manufacturing, and it is not importing as much, he said. "The country remains the fourth largest exporter of jewellery in the world."
So, I see this [restriction] merely as a control mechanism brought by the government, he said.
Gold Prices: Impact
The policy change would not adversely impact gold in domestic markets as it is a global commodity and certain gold jewellery articles form a very small percentage of the imports, experts told BQ Prime.
"There won't be any major impact on prices as they are largely driven by macro-economic factors. The recent change might curb imports from small jewellers as they will now have to get permission before importing certain gold products," said Ravindra Rao, head, commodity research, Kotak Securities.
However, the move may have some impact on gold prices, according to Anuj Gupta, vice president, IIFL Securities. "This will impact gold in the domestic market, and the price may move higher. To manage current account deficits, the government has taken this step. We expect gold prices to move up and test Rs 60,000–60,500 very soon," Gupta said.
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