India will review its tight curbs on gold imports by the end of March, the finance ministry said on Monday.
India used to be the world’s biggest buyer of bullion until last year when a swollen current account deficit prompted the government to slap a record 10 per cent duty on imports and the central bank to tie imports to exports.
With the current account deficit now expected to be sharply down in the current fiscal year and the leader of the Congress party, which heads the government, reportedly asking for a reprieve, a change was increasingly on the cards.
Any easing of curbs could boost imports and might make smuggling less attractive.
Revenue Secretary Sumit Bose said on Monday a review of gold curbs will come by the end of March, which coincides with the end of India’s fiscal year and collating of budget figures.
Finance Minister P. Chidambaram had said earlier on Monday there could be a review of curbs by the end of this year but had not clarified whether he meant the fiscal or calendar year.
The government has often linked any relaxation of the rules with an improvement in the current account deficit but last week, Congress party leader Sonia Gandhi asked for consideration of complaints from the industry, according to media reports.
The Reserve Bank of India, which has said 20 per cent of all imports must be used for exports, is unlikely to review its rules until after the end of March, a policymaker directly handling gold import regulations said last week.
Gold imports have dropped by more than half in recent months under the restrictions and touched 21 tonnes in November.
Bose added that imports in December were higher than in November but did not give any details.
India’s current account deficit is now expected to be below $50 billion in this fiscal year compared with earlier estimates of about $70 billion. Last year it was a record $87.8 billion.
“(If the curbs are eased), official numbers will definitely increase and smuggling will reduce,” said Helen Lau, senior analyst at UOB-Kay Hian Securities in Hong Kong, adding that pent up demand from retailers could boost imports.
Lau, however, said the easing of the central bank’s curbs, known as the 80/20 rule, to 90/10 would have a bigger impact on imports than lowering the record duty of 10 per cent.
India’s official 2013 trade figures showed that imports started dropping significantly only after the 80/20 rule was introduced.
Gold prices were trading near their highest in more than two months on Monday due to sliding equities. The news from India did not have an impact.