India eases gold import rules as smuggling connected to campaign funding

Mumbai-India (Mar 20)  In a move that could boost gold imports in India and bring down premiums on the precious metal considerably, the Indian government eased import regulations to allow some of the country's private sector banks to buy gold from abroad.

Traders said the move could be taken as a signal that tough restrictions on the import of gold may be relaxed.

Under new rules, private banks such as Axis Bank, IndusInd Bank, Kotak Mahindra Bank and Yes Bank are now allowed to import gold under an existing 80:20 scheme in order to boost supplies for gold jewellery exporters.

With India's current account deficit easing from its record high of $88.2 billion in FY13, some banks had already been allowed to import the yellow metal ander the 80:20 scheme, which was introduced back in August 2013.

That is, nominated agencies - until now by and large state run lenders - could import gold on the condition that 20% of the shipment would be exported and the remainder kept for domestic use.

Traders pointed out that the move is expected to double monthly imports of the precious metal. However, no central bank notification on the policy easing has been released since the move is mainly aimed at curbing gold smuggling.

Gold imports to India had plummeted to around 20 tonnes per month from peak levels of around 70 tonnes per month in the wake of the import restrictions.

A massive surge of subsequent gold smuggling has forced customs authorities to tighten baggage rules, mainly for passengers arriving from the Gulf countries. And tax officials have also started making physical checks of gold stocks held by traders and wholesalers in order to tabulate the inventories with the amount imported through legal channels.

"All the grounds are being covered," said Manish Kedia, a bullion dealer. "Officials are going around and swooping down on jewellery houses to ensure that the gold that is imported tallies with what is available in the store. Physical checks are being conducted at most places in Mumbai."

Election/gold funding

With India's general election process now in full swing across the country, election officials are also looking into alleged cases of smaller political allies using smuggled gold to fund their pre-election campaigns.

Kedia, the bullion dealer, pointed out that ever since a political party leader had been arrested by officials last week with possession of 45 kilograms of unaccounted gold near Kolkata, the role of gold in India's electoral process has come under greater scrutiny.

Now under stricter surveillance, tax officials have seized over 98 kilograms of gold in the past seven days. The seizures took place soon after the dates for the elections were announced by the government, suggesting smuggled gold is being used for election purposes.

Source:  MineWeb