Wednesday, January 8, 2014

REMOVE FETTERS ON GOLD TO END ROUND TRIPPING-economic times

Please click on the following link to read the item:

http://epaper.timesofindia.com/Repository/ml.asp?Ref=RVRELzIwMTQvMDEvMDcjQXIwMTQwMQ==&Mode=Gif&Locale=english-skin-custom




 DISTORTIONS IN INDIAN GOLD AND JEWELLERY IMPORTS
TEJINDER NARANG
The rise in gold premium to about $125-$150 per troy oz. reflects its physical tightness in domestic availability, which is about 10%-12% of the metal price of $1250/troy ounce. Conclusively, despite steps taken to curb the import of precious metal Indian appetite remains stronger. 10% duty on 80% gold import and 20% advance export obligation through nominated agencies (STC/MMTC/PEC) and nominated banks has limited official imports.
This premium is due to risk and cost of working through illicit channels directly or through third countries, evasion of taxes and supervisory surveillance by the administration. It is yet another confirmation of thriving parallel economy in the country.  In this situation of supply/demand mismatch, market requires more gold through official route, if such premiums are to be moderated.
Media reports are suggesting “higher” jewellery imports with about 16% duty payments where there is no involvement of nominated agencies. For ensuring 20% export commitment, the probability of market participants  out-smarting the Government by first exporting jewellery and then reimporting the same through circuitous route, cannot be ruled out.
The procedure —e.g. first export gold jewellery to say Dubai/Hong Kong from Chennai; then import the same ornament to say Delhi by paying 16% tax; send it back to Chennai for another round tripping to Dubai. This translates to about 2-2.5% cost implication for compliance for private trade when premium for gold is 10%.  
Basically 20% gold may remain in “air travel” both overseas and domestically. As and when the current scheme of 20:80 is withdrawn, 20% gold may come back duty free or at a lower duty. Apart from the smuggling route and non-reported financial transactions, under invoicing exports/over invoicing other imports and this round tripping is another innovation—call it Jugaad—devised under the current policy.
How can instant additional demand of jewellery be generated overseas when the world’s largest consumption/conversion of gold into ornaments lies within India? So compulsion or virtual coercion  on exporting jewellery cannot be extended beyond a limit when local demand stays robust as per World Gold Council.
In the normal course, STC/MMTC/PEC (PSUs) and even nominated banks are not interested in jewellery export which is driven by its own dynamics of purity/design/understanding/timing/price fixation. Thus, 20:80 schemes remained dormant. Most of the banks have shown nil participation. However, Government advised STC/MMTC/PEC in November/December 2013 to import certain quantities under 20:80 scheme wherein first fulfilment of export obligation of 20% and consequent import of 80% on payment against documents (DP), has to be ensured.
Bullion traders are willing to share about 6%-7% of the premium with STC/MMTC/PEC under 20:80 policy and undertake risk free transaction at (10-2.25-6) = 1.75% as per the prescription defined by RBI. Some agreements between PSUs and importers have been concluded on this profile. Any escalation in the market premium could be bonus for the trade and PSUs as well. It however does not discourage round tripping of jewellery nor will it soften the gold premiums in open market.
Commercially, it is a bonanza for PSUs who will be making a neat 6% or Rs 15 crores per ton of gold, considering that each ton of gold costs Rs 242 crores at the current pricing. However the accrual of such golden revenues depends on the sustenance of premium in the market and the speed at which the 20% export obligation is performed.
 In a broader perspective squeeze on gold import is totally unwarranted. It may be a creation of current account deficit (CAD) where Gold cannot be solely held the culprit. It is the policy paralysis, governance issue and judicial interventions. Ideas and official claims that CAD is now better managed due to constraints on gold import, is negation of bare facts—because projected CAD on paper and the physical reality/intensity are in contradiction. Even RBI Governor does not support road blocks in gold import. Let the status be reverted to pre Jan 2012 import policy, for markets to work right.

EXTRACT FROM BUSINESS LINE PAGE 4 10.4.2014







3 comments:

  1. Share Market Investment made profitable by SHRISTOCKTIPS- Get NSE/BSE Tips via SMS and Yahoo Messenger. We give daily stock market tips for future and cash segments. As said last time we made a buy position in NIFTY around 6200-6250 still we are holding this position. We expect NIFTY to bounce back from this level. New tradersBSE, STOCK TIPScan also make a buy position at the same level & can also make a buy position in NIFTY 50 stocks with the NIFTY level & with stoploss of 6100. Please trade with strict stoploss because there will be a high volatility in the market next week due to political ncertainity. For Further update keeps following our website.
    Regards
    SHRISTOCKTIPS TEAM

    ReplyDelete
  2. Thanks and RI really love to read this post and I am glad to find your distinguished way of writing the post.regards........Review info on import procedure in Chennai. Smurugappan.com is a firm of professionals that focuses in import procedure and helps the customs procedures in India. Browse through the website to get complete information.

    Import Procedure Chennai

    ReplyDelete
  3. Thanks For sharing useful post for us

    Smurugappan may be a firm of execs deals in Tax Services India. Important cases handled by our workplace before High Courts and Tribunals are rumored in tax journals.


    Import Procedure India

    ReplyDelete