India’s gold imports in the first four months of this fiscal have doubled in value from the year-ago period.
This has contributed to a threefold expansion in the merchandise trade deficit.
Given the role of gold imports in trade imbalances, it calls for deeper analysis and vigilance.
What are the reasons?
Earlier in the year, fears of high tariffs under GST led to the gold trade stockpiling material.
Later, gold imports spiked as a result of a tariff loophole that allowed zero-duty imports from South Korea.
Pre-GST, the government curbed certain previously waived custom duties (under free trade pacts such as with South Korea) by a countervailing duty (CVD).
Post- GST, as CVD got subsumed by it, gold imports from these regimes suddenly turned cheaper, resulting this route being used for round-tripping.
Both these onetime and existing structural factors have contributed to the recent surge in gold imports.
What is the way forward?
To address round-tripping, centre should consider measures such as a safeguard duty or minimum value-addition norms for exports.
Policy intervention is essential to curb opportunistic imports of gold.
However, Centre should refrain from hasty measures to suppress genuine consumption demand for gold.
This is because, unlike in the past, demand for gold is likely to be more consumption oriented than an investment one.
Also, given the formalisation of the jewellery industry after demonetisation and GST, only a business-as-usual approach can work in favour of the economy at present.
