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India may try anything to reduce gold imports -- except stabilize the rupee

Section: Daily Dispatches

India May Consider More Steps to Curb Gold Imports

By Rajesh Roy
The Wall Street Journal
Thursday, May 30, 2013

NEW DELHI -- India may consider more steps in early June to reduce domestic gold consumption if imports of the metal remain high this month, a senior finance ministry official said Thursday.

Gold imports in April more than doubled in value from a year earlier to $7.5 billion as prices hit a two-year low. Imports are expected to be high again in May because of the wedding season and festival-related demand.

"Imports have jumped substantially in the first fortnight of May. We are waiting for the complete month's data before taking a call if more measures are required," the finance ministry official told The Wall Street Journal.

He didn't elaborate what steps the government may take, but said there is no plan to ban gold imports or to further raise the import tax.

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Industry executives said the government may limit the amount of gold imported by state-run agencies such as MMTC Ltd. and State Trading Corp. of India Ltd.

"It's very difficult to ban imports as gold is an emotional issue in India. Any such move will also lead to a rise in the smuggling of gold," the official said.

Gifting gold jewelry during weddings is a tradition in India. Buying usually increases during Hindu festivals such as Diwali and Akshaya Tritiya. This year, Akshaya Tritiya, a major gold-buying festival, was on May 13.

Imports of the precious metal have been a major contributor to India's wide trade and current-account deficits. Only crude oil accounts for a larger share of India's imports than gold.

India is estimated to have imported 100-120 metric tons of gold in April and the figure is expected to remain at a the same level this month, industry executives said. Usually, India imports 70-80 tons a month.

India has already taken several steps to damp demand for gold, including raising the import tax to 6% from 2% over the past year. Until mid-May, bullion dealers could place gold import orders with a designated bank by paying a margin upfront and the rest on delivery, but a new rule stipulates they pay the entire amount before importing.

India will also sell from next month government bonds that will adjust returns based on the rate of inflation, a move aimed in part at weaning away small investors from buying gold as a hedge against high inflation.

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