India gold import curbs could be eased by year-end

But the government import restrictions have led to a scarcity of physical gold inside the country which increased smuggling activity and sent premiums paid over the London price to rocket to as much as $130 an ounce.

The gold trade employ three million Indians and with activity so low, even during the recent festivals, some gold shops have been forced to quit the market or idle their businesses.

The Economic Times reports Monday, quoting an official from the ministry, that the economic situation has improved to such an extent – including a 10% appreciation in the rupee from record low in August – that some curbs may be lifted and others eased by the end of the year.  

“There have been several representations,” said the official cited above, adding that a call will have to be taken based on several factors, including the degree of the threat to CAD, the impact on duty collections as gold imports shift to unofficial channels and the effect on employment. Gold traders and jewellery exporters have lobbied hard with the government for the easing of the import compression measures, arguing that they had fuelled the grey market and hurt trade badly.

No doubt there is a political angle to easing the restrictions too after India’s ruling Congress Party were roiled in state elections last week  – losing the three large states of Rajasthan, Madhya Pradesh and Chhattisgarh  – ahead of general elections set for 2014.

According to some estimates about 400 tonnes of recycled gold to enter the market this fiscal year to March 2014, compared with normal rates of about 130 tonnes, according to Thomson Reuters GFMS data.

India’s 330 million households are hoarding 18,000 – 20,000 metric tonnes of gold worth some $900 billion at today’s prices, representing almost 50% of the country’s GDP.