The recent estimates provided by Thomson Reuters GFMS and World Gold Council (WGC) indicate that tight policy restrictions had curbed the official gold imports by India to 883 tonnes in 2013 from 983 tonnes in 2012. However, quite alarmingly, the quantity of the yellow metal smuggled into the country has skyrocketed during the year.
According to trade experts, one of the several ways to reduce smuggling would be to lower the gold import duty to 8% from 10%. The government should also ensure that gold could be easily procured in sufficient quantities from designated domestic banks and agencies by paying a surcharge of under 4% of the market price of gold.
In addition, banks should be allowed to invite domestic gold deposits in the form of biscuits, bars and coins. The banks must be allowed to implement a gold-for-gold scheme whereby, for every tonne of gold deposit that the banks collect, the government could allow them to import duty-free a percentage of the gold deposits.
The proposed scheme permits gold owners to deposit their holdings with bank and earn interest in return. After all, temples and households in India together is said to have huge physical gold holdings of over 25,000 tonnes.
Eased supply could reduce gold smuggling in the country. India could then look at gold export market which could bring in billions of dollars in revenue. The gold industry in the country awaits timely decision by the government to tighten the reins on gold trade through back doors.