RBI draft report backs limits on gold importers

MUMBAI Wed Jan 2, 2013 8:13pm IST

The Reserve Bank of India (RBI) logo is pictured outside its head office in Mumbai January 25, 2011. REUTERS/Stringer/Files

The Reserve Bank of India (RBI) logo is pictured outside its head office in Mumbai January 25, 2011.

Credit: Reuters/Stringer/Files

Related Topics

Stocks

   

MUMBAI (Reuters) - The Reserve Bank of India (RBI) has asked that volume and value restrictions be placed on gold imports by banks and agencies such as MMTC (MMTC.NS) to help rein in a current account gap which touched an all-time high in the July-September quarter.

Such banks and agencies control about 56 percent of the gold imported into India, which vies with China as the world's largest buyer of the precious metal.

A ballooning current account deficit (CAD) is a major concern for the government, with gold imports the biggest contributor to imports after crude oil.

New Delhi has doubled the import duty on gold to 4 percent in its annual budget for 2012/13 in a bid to discourage imports.

"Setting value or quantum limits for canalising agencies and banks to import gold can also reduce the demand for gold. Such limits can be reviewed periodically," RBI said in a draft report, which is open for public comments until January 18.

Separately on Wednesday, the federal government called for making gold imports more expensive to help address the current account deficit, which touched a record of 5.4 percent to gross domestic product in the July-September quarter.

The central bank's draft report said controlling excessive demand for gold could help check imports, suggesting banks introduce new gold-backed financial products.

Gold imports rose 9 percent to 223.1 tonnes in the July-September quarter, after a 56 percent fall to 131 tonnes in the April-June quarter.

Analysts predict a sharp recovery in the final quarter due to peak festival and wedding season buying.

The draft report said if gold imports in India had grown by 24 percent - the average annual rise in global demand seen over the last three years - instead of 39 percent in 2011/12, the current account deficit would have been $6 billion lower and the CAD-GDP ratio 3.9 percent instead of 4.2 percent.

India imported a record 967 tonnes of gold in 2011.

MONETISE IDLE STOCKS

The central bank recommended the use of 20,000 tonnes of idle gold stored by households in India, which is about three times the holdings of the U.S. Federal Reserve, by introducing gold bonds, gold deposit schemes and tax incentives.

"The impounded gold through gold bonds can be used to reduce the demand for gold imports. There can be a lock-in period," the draft report said.

Indian banks might also consider expanding their share of gold jewellery loan portfolios to monetise huge stocks for productive purposes, the report said.

A working group at the central bank also asked for rationalisation of interest rates charged by non-banking financial companies on gold loans by imposing a cap on them.

(Editing by Jason Neely)

FILED UNDER:
Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

  • Most Popular
  • Most Shared

Economic Pulse

REUTERS SHOWCASE

Indian State Media

Indian State Media

Controlling the message: Modi chooses state media  Full Article 

ONGC Stake

ONGC Stake

Govt meeting bankers to discuss share sale in ONGC - source  Full Article 

Gold Curbs

Gold Curbs

Finance Ministry wants to reimpose curbs on gold imports - ET  Full Article 

World Stocks

World Stocks

Shares advance on strong data, earnings  Full Article 

IBM Chip Unit

IBM Chip Unit

IBM to pay Globalfoundries to take chip unit  Full Article 

Eyeing Reebok

Eyeing Reebok

Investor group aims to buy Reebok unit - WSJ  Full Article 

Reuters India Mobile

Reuters India Mobile

Get the latest news on the go. Visit Reuters India on your mobile device.  Full Coverage