A top-level officer in India is suggesting that gold imports should be restriction-free. This pitch was made by Nirmala Sitharaman, Commerce and Industry minister in the Asian country.
Right now, India is the second largest gold consumer in the world by a lot, only surpassed by China. While this country is one of the biggest in demographic terms, the massive gold demand can be considered as a clear result of the long-lasting traditions and religious culture.
The proposal was made last year, based on a more subtle import duty cut. But now the minister is insisting on a wider permission for those looking to legally import gold in the country. She said to the press that the actual restrictions aren’t only stimulating smuggling but also damaging the jewellery sector.
Helping the Productive Engine
Minister Sitharaman have an evident sentiment towards the jewellers, being a big part of the Indian economy. “Outbound shipments of gems and jewellery, which account for about 13% of the country’s total exports, in October rose by 22% to $ 4.38 billion,” says an article published by Hindustan Times, covering the minister’s efforts.
It is logical to think that easing the restrictions on gold import would boost jewelry exports, helping big time the domestic economy. From that point of view, the minister’s proposal should become a top priority for the actual economic agenda.
Back in 2013, the government did exactly the opposite: the import duty was increased by 10 per cent in order to discourage imports and contain the account deficit, boosting at the same time smuggling activities to feed the demand generated by the jewellery sector.
There is a clear disagreement inside the government. In the original article we can read that “She further said the ministry last year had recommended import-duty cut on gold, but “given the situation then, I think nothing moved in our favour””.
Stimulating the Gold Market
Taking down the massive restrictions on gold in India could help the market. Prices would go up when the Indian jewellers get a broader access to raw material. Smuggling activities would be discouraged at the same time, helping the proper gathering of data related to trade and commerce.
Even with the actual import duties, gold demand keeps increasing in India, demonstrating that the country’s hunger to buy gold bullion and jewellery is far from being satisfied. “Arresting the eight-month fall, gold imports more than doubled to $3.5 billion in October. The imports had stood at $1.67 billion in October last year,” says the article, giving a clear proof of this increase happening.
Gold investors should pay more attention to what minister Sitharaman accomplishes in this matter. Reducing restrictions on these imports would be a decisive thing for gold, increasing the nationwide demand and boosting jewellery exports as well. The raw material can easily get more expensive, benefiting to those betting on this market.
While Indian authorities are working hard against gold smugglers, the truth is that these illegal activities aren’t going to end while the import duty remains so high.