India Surprises With Removal Of Key Gold Import Restriction
India surprised the gold market on Friday when it removed a fairly stringent restriction on gold imports. The Reserve Bank of India issued a statement announcing the change on Friday afternoon, but did not give a reason for scrapping the import rule. Analysts have cautioned that the news may not give gold prices the boost investors are hoping for.
India surprised the gold market on Friday when it removed a fairly stringent restriction on gold imports, bringing a bright spot to an otherwise dreary gold market. The Reserve Bank of India issued a statement announcing the change on Friday afternoon, but did not give a reason for scrapping the import rule. "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issued about the scheme from time to time starting with A.P. (DIR Series) Circular No.25 dated August 14, 2013 stand withdrawn with immediate effect," the bank said. According to Reuters, the rule change comes as a surprise in light of recent talks between officials of the Mumbai-based central bank and the finance ministry in New Delhi; they had looked at increasing curbs on imports. A policymaker in India told the news outlet, "[w]e were not informed about the reason for scrapping this rule. The restrictions on who all can import who can't are still valid." About the rule India's so-called 80:20 gold import rule was introduced in 2013. The restriction required traders to export 20 percent of all gold imported into India in an attempt to slow gold imports. That change sparked a rise in gold-smuggling activities, forcing gold consumers to resort to various extreme measures, "[f]rom getting human mules to swallow nuggets to hiding gold bars in dead cows," Reuters states. In that light, it's unclear just how effective the mandate was. Bart Melek, head of commodity strategy at TD Securities, and Julian Jessop, chief global economist at Capital Economics, both told Kitco News that the import controls did little to curb Indian gold demand. Whether dropping the rule will reduce smuggling and up legal imports remains to be seen.