In a move towards erasing restrictions on gold imports, the Reserve Bank of India (RBI) on Friday scrapped the controversial 80:20 scheme, something which the industry feels will bring down prices of the precious metal.
Under the 80:20 norm, put in place in August 2013 to curb high gold inflows that was widening the current account deficit, at least 20 per cent of the imported gold had to be mandatorily exported before bringing in new lots.
The surprise move comes a time when the industry was actually expecting more curbs imports of gold which is seen as an unproductive asset attracting household savings away from the financial markets.
“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 Accordingly, all instructions issued about the scheme from time to time...Stand withdrawn with immediate effect,” the RBI said in a notification.
Gold imports jumped 280 per cent to $4.17 billion in October, as per the latest trade data. The in-bound shipments touched 95 tonnes in September this year as against 12 tonnes a year ago.
There were apprehensions in the market that Government and the RBI may clamp more restrictions to curb the rising gold imports.
“We believe the move (to scrap 80:20) will do away with the distortions and calm the market which was anticipating some curbs to restrict gold imports,” agencies quoting an official said, adding this would help reduce imports.
“This scheme was totally impractical as it was promoting monopolistic business practices. After scrapping of this scheme, gold prices may come down as there is dip in overall demand in global markets, crude prices are already down and now importers will also charge less premium on import of gold,” All India Gems and Jewellery Federation Chairman Haresh Soni was quoted as saying by news agencies.
The 80:20 scheme initially seemed successful as gold imports had slowed, but the shipments surged after certain relaxations were given by then UPA Government in its last days.
The norms were relaxed in May and six private sector trading firms were permitted to import the gold under the 80:20 scheme. Initially, only state-owned firms and banks were permitted to import. The six private firms, which were given relaxation, accounted for 40 per cent of the total gold imports in April-September.
India imported 95.67 tonnes of gold in September, the highest level in the first six months of this financial year.
In August, the imports stood at 50.21 tonne.
Imports of the precious metal in April, May, June and July were 43.20 tonne, 52.61 tonne, 77.68 tonne and 45.26 tonne, respectively. Besides 80:20 restriction, the government had hiked import duty to 10 per cent and the RBI too had imposed curbs on its part.
The rising gold import pushed CAD in April-June 2014 to 1.7 per cent of GDP, up from 0.2 per cent in the March quarter.
The CAD had touched a record high of 4.7 per cent of GDP (USD 88 billion) in the 2012-13 but came down to 1.7 per cent (USD 32 billion) in the following year amid restrictions on gold imports.