NEW DELHI: The commerce department is against the idea of putting a blanket restriction on import of gold even as surging imports have worsened India’s trade and current account deficit.
Officials said any such move may trigger objections from other countries, apart from allegations of bringing back the licence raj.
"We don’t favour a blanket restriction on gold imports. This may not be the best idea as it may involve disputes in the World Trade Organisation," said an official, who did not wish to be identified. The ministries of commerce and finance are set to discuss the issue of surging gold imports.
Gold imports between April and August tripled to $15 billion from nearly $5 billion a year ago.
India has restricted all forms of gold imports from South Korea on the grounds that it is not a gold producing country. However, the commerce department is against the use of any such measure across the board.
In the first two weeks of September, India imported almost 250 kg of gold from Indonesia and more than a $1 billion worth of gold from South Korea between July 1 and August 21. While Indonesia is part of the 10-member Association of South East Asian Nations, with which India has a free trade agreement, South Korea has inked a Comprehensive Economic Partnership Agreement with the country.
Under its free trade pacts, India has eliminated the 10 per cent basic customs duty on gold. Further, the 12.5 per cent countervailing duty on gold imports was replaced by a 3 per cent integrated goods and services tax from July 1.
Hence, as per the new norms, gold imports from a country with which India does not have a trade pact attract a 10 per cent basic customs duty and a 3 per cent GST, while those from the FTA channel have to pay only the 3 per cent GST.
Due to this arbitrage, importers have been routing gold through India’s FTA partners to avoid higher duty.
The situation in the case of ASEAN is different from that of South Korea because three countries in the grouping – Laos, Philippines and Indonesia – are gold producers. However, in case of gold coming from South Korea, it was originating in some other country and was only being routed through the country to avoid duty.
"Now, most of the gold is coming directly from Indonesia ever since the South Korea route got blocked after restrictions," the official said.
ET View: Alternative Saving Instruments
It is entirely possible that there was bunching of gold imports in the run up to GST. Note also that gold sales have reportedly almost halved after new rules were announced in August. It is now compulsory to provide KYC information on gold purchases of Rs 50,000 or more (the earlier limit was Rs 2 lakh). To discourage and deter investment in gold, we need to increase the options for liquid financial instruments, particularly in the hinterlands.