Mumbai: Hinting that government may change duty structure for gold, Reserve Bank Governor Raghuram Rajan
today said the 80:20 import curb was scrapped to remove distortions it was creating in the precious metal trade.
Rajan also asked investors to put their money in financial instruments and not just in gold.
About the controversial 80:20 gold import curbs, put in place in August 2013 to curb high gold inflows that was widening the current account deficit, Rajan said government decided to scrap this scheme as it was creating distortions.
Under this scheme, at least 20 percent of the imported gold had to be mandatorily exported before bringing in new lots.
While he did not specify what these distortions were, there have been apprehensions that the controversial 80:20 scheme was leading to increased smuggling of gold and giving undue benefits to a select importing entities.
Rajan said the “government decided that it was probably the best decision at this point to scrap this rule”, adding there are some requests to change the duty structure and that government will view and take a decision on it.
The then government in 2013 had increased import duty on gold to 10 percent.
“There were arguments that while there were distortions, they were small relative to larger effective containment of gold imports, at the same time there was an argument that any distortion is bad and we are at a point where we can end such distortions,” the Governor said.
The surprise move came at a time when the industry was actually expecting more curbs on imports of gold, which is
seen as an unproductive asset-attracting household savings away from the financial markets.
“The decision to scrap the 80:20 scheme is a reasonable one and let us see how it plays out. I think the fact that we have a substantial fall in crude imports means that we have some room to sustain an expansion in another import,” he said at the post policy meeting with reporters.
The governor said the decision to withdraw the scheme was taken by the government and RBI involvement was just to advise it on the same as there were some debates about the 80:20 scheme and the distortion it was creating.
He asked investors to look at other financial instruments for investments rather than just looking at gold.
“Hopefully, the performance of financial assets, both fixed income and equities, will convince more and more of them to put their money in those kinds of assets in a diversified and safer way rather than in jewellery,” Rajan said.
It can be noted that gold imports jumped 280 per cent to $4.17 billion in October. The in-bound shipments touched 95 tonnes in September this year as against 12 tonnes a year ago. Following this, there were apprehensions in the market that government and the Reserve Bank may clamp down more restrictions to curb the rising gold imports.
Sources said the 80:20 scheme was initially “working” as gold imports had slowed, but shipments surged after certain relaxations were given by then UPA government in its last day.
The norms were relaxed in May and six private sector trading firms were permitted to import the gold under the scheme.
Initially, only state-owned firms and banks were permitted to import. The six private firms, which were given relaxation, accounted for 40 percent of the total gold imports in the first half.