Bloomberg News

India Must Recycle Gold Scrap to Curb Imports, Bank Panel Says

February 06, 2013

India, the world’s biggest bullion buyer, should recycle gold scrap and impose export obligation on bulk purchasers to reduce imports and narrow a widening current- account deficit, a central bank panel said.

“A combination of demand reduction measures, supply management measures and measures to increase monetization of idle stocks of gold need to be put in place,” the panel set up by the Reserve Bank of India to study issues related to imports and companies lending against the metal said in a report.

India has tripled the tax on gold imports in the past year, raising it to 6 percent on Jan. 21, after the current-account gap widened to a record and rupee slumped to an all-time low. About 80 percent of the nation’s current-account shortfall, the widest among the biggest emerging economies, is due to gold imports, according to the central bank.

The panel recommended “fiscal measures” to curb demand and introduction of inflation-indexed bonds for investors. It also said bank finance for purchase of the precious metal be prohibited and a gold bank be set up to lure idle stockpiles and provide refinancing.

The government may also consider limiting gold imports by banks in extreme situations, said the panel, which was headed by K.U.B. Rao, an adviser to the central bank. The bank will examine the recommendations and take a view, RBI said.

India’s gold imports were estimated at $38 billion in the nine months through December, compared with $56.5 billion in 2011-2012, the finance ministry said on Jan. 21. Higher taxes may cut demand, trimming imports to as low as 750 tons in the financial year starting April 1 from 855 tons estimated for this year, Nomura Holdings Inc. said Jan. 22.

To contact the reporter on this story: Swansy Afonso in Mumbai at safonso2@bloomberg.net

To contact the editor responsible for this story: James Poole at jpoole4@bloomberg.net


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