BackRBI removes 20:80 gold import rule
The 20:80 norm was introduced in August last year when the current account deficit had touched a record and gold imports had been surging
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Mumbai: The central government unexpectedly eased gold imports on Friday by removing a restriction that required traders to export 20% of the precious metal they bought overseas—a move that had been aimed at cutting the current account deficit (CAD).
The so-called 20:80 norm was introduced in August last year, together with a duty of 10%, at a time when the deficit had touched a record and gold imports had been surging.
“It has been decided by the Government of India to withdraw the 20:80 scheme and restrictions placed on import of gold. Accordingly, all instructions issued about the scheme from time to time starting with August 14, 2013 stand withdrawn with immediate effect," the Reserve Bank of India (RBI) said on its website on Friday.
The gold import curbs ensured that CAD dropped to manageable levels. The deficit touched a record high of 4.7% of gross domestic product (GDP) at $87.8 billion in 2012-13. Helped by the curbs on gold imports, CAD dropped to 1.7% of GDP, or $32.4 billion, in the fiscal year ended March.
Gold imports fell to $33.4 billion in 2013-14 from $55.8 billion in the previous financial year.
Analysts said the sharp fall in oil prices, which would rein in the CAD this year, has given the government room to ease curbs on gold imports.
“Oil prices are down and this means that the current account deficit is also lower," said Naveen Mathur, associate director, commodities and currencies at Angel Broking Pvt. Ltd. “The withdrawal of the 20:80 scheme means that gold imports will be allowed more freely, which will automatically cool down domestic prices of gold. Gold prices could easily come down by ₹ 2,000 per 10g in the near future."
International oil prices have eased 30% in the current fiscal year to around $72 per barrel on Friday from $103 per barrel in April as slowing demand in countries like China and emergence of alternative fuels like natural gas and shale oil has lowered demand for the commodity.
The fall in oil prices and of other imports like gold has squeezed CAD to 1.7% of GDP in June from a peak of 5.38% of GDP in December 2012.
Angel Broking’s Mathur expects domestic gold prices to fall to ₹ 24,000 from ₹ 26,140 per 10g currently. Gold prices have also come off their peak this fiscal year of ₹ 30,035 per 10g touched in May.
It was time for the curbs to be removed, said D.K. Joshi, chief economist at rating company Crisil Ltd.
“Gold import is already less of a contributor to the deficit than other commodities like coal and oil. These were extraordinary restrictions and it is time to make them more normal," Joshi said.
The rule change came as a relief to jewellers facing difficulties in sourcing gold during the key festival and wedding season that started in October.
The 20:80 rule was not only encouraging smuggling but was also misused by many traders, said Bachhraj Bamalwa, director of the All India Gems and Jewellery Trade Federation.
October shipments to India, the world’s No.2 gold consumer after China, jumped to about 150 tonnes, from less than 25 tonnes a year earlier and 143 tonnes in September, according to a Bloomberg report on Friday.
In the January-September period, demand for gold in India fell to 619.5 tonnes from 756.1 tonnes in the same period last year, the World Gold Council said in its report earlier this month.
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