In gold we trust, silver we must

Recent bullion policies reflect concerns about trade deficit, rupee

The two decisions yesterday, or rather an indecision and a super-quick decision, showed the best and worst of the bureaucracy. In the morning, an agency report rocked the bullion market, as it stated that tonnes of gold and silver were struck at the customs, and other places due to a lack of an official order. Within an hour or so of the news, a circular emerged that enabled the import trade, after a possible lag of more than two weeks. The delay seems inexplicable. The charitable explanation is mere oversight, or some delays in the red-tape process, which is usual. The conspiratorial theory is that it was a deliberate move to curb bullion imports to give an additional breathing space to the rupee. The second one gains credence after the Government earlier imposed strict restrictions on gold imports, and the central bank took severe, unexpected, unimaginable, and anti-reforms measures to support the rupee. The links between bullion imports and rupee are logical.

But first, let us look at the two orders, rather a non-order, and a circular. Generally, the directorate general of foreign trade, issues an order at the start of each financial year (April 1, but it is not to make a fool of people) that lists the banks that are authorised by the central bank to import gold and silver. The previous order was valid till March 31, 2026, and there was not a new one, or a new list of the banks, until yesterday morning. Hence, what normally takes a few days, lasted for 16 days. In the process, the banks were unable to import, and the shipments were struck at the various locations. One of the bullion dealers said more than five tonnes of gold were struck, and the agency which reported the delay estimated that eight tonnes of silver was floating around without customs clearances. This raised immediate concerns about shortages, as India is among the largest importers, although imports fell to just over 700 tonnes of gold in 2025, the lowest level in the past five years, as per the World Gold Council.

Immediately, in less than an hour, if one looks at the timing of the media reports (non-order and order), the directorate general issued the order with a list of the banks that are allowed to import the bullion. The order permits 15 banks, which include SBI, HDFC, and Bank of India, to import the bullion up to March 31, 2029. In between, a spokesperson of the bullion association made a statement that there was a “need to bring clarity, and ensure imports resume.” If the initial agency report is to be believed, the normal period mentioned in such past orders was for 12 months, April-March. This order seems to be for three years, or an aggressive indication that the delay was not deliberate but oversight, and the three-year period proves that there was no conspiracy. Most of the stakeholders, whether officials, banks, and dealers, maintained silence once the order was issued, and everything seemed normal. It was as if the earlier 16 days did not exist, or mattered. It was back to normal bullion-banking business without any delays.

However, if one connects the bullion-bank order with the moves that the central bank made on the rupee in the recent past, one can establish a connection, even if it is indirect and maybe a bit tenuous. Over the past 2-3 weeks, the Reserve Bank of India (RBI) has been jittery, even scared, about the weakening of the rupee. This was especially visible when the rupee stood at over Rs 95 to a dollar, with the expectations that it was a matter of when, not if, before it was at Rs 100. Scared of the free fall within weeks, which normally takes 1-2 years, the RBI reacted like a wounded central banker. It imposed a series of bans, restrictions, and limits, which reminded experts of a situation that happened more than decade ago. Experts said that the actions were anti-reforms, and reduced India’s credibility in the world arena. But the RBI was adamant because the rupee at Rs 94 to a dollar was sacrosanct. The rupee strengthened, and moved to Rs 92-93 to a dollar, and settled around the Rs 93 mark. The fear of it breaching Rs 95 again in a few days, and going towards Rs 100 in a few weeks were gone.

It was during this period that the order listing the bullion-importing banks, which generally moves from the RBI, was stalled. It was during these critical two weeks that the bullion imports stood at a standstill due to the lack of legal clarity, and bureaucratic delays. Since the central bank was the originator of the moves related to the bullion and rupee, and since gold and currency are inter-linked, one can smell a rat, or sense a cat among the pigeons. One of the reasons for the weakened rupee, apart from several others, is the looming trade deficit, which is the result of lower exports, and more expensive imports due to the Iran war, and other reasons. Gold is one of the most important ingredients among the imports, and is perhaps among the least significant products in the economic sense. A curb on gold imports, even if for 16 days, was a huge boon for the trade deficit, and rupee. Do not forget that less than two weeks ago, the same directorate general imposed other curbs on bullion imports, with the ostensible reason to check the deficit, and boost rupee.

At that time, the official reason was not about the deficit or rupee, but misuse of imports. Media reports indicated that traders imported the gold into India “by routing them through partner nations with which India has Free Trade Agreements. They would make only minor modifications to the metal arriving from these countries. Subsequently, they would claim duty benefits or exemptions. This practice was causing significant harm to the country’s domestic industry, and was also adversely affecting government revenue. By addressing these loopholes, the central government aims to ensure that only legitimate trade takes place within the country, and that the import of precious metals can be regulated more effectively.” What is crucial to note is that the curbs were immediate, instant, and applied to everything, whether the import contract was signed, or letter of credit issued for the deal. This hinted that the move was to reduce imports of gold immediately, as was the case with the delay in the order that listed the banks later.