India, the world's biggest buyer of gold, has imposed fresh curbs on imports of the precious metal in an attempt to narrow a record current account deficit. The Reserve Bank of India (RBI) announced late Monday new rules for importers stipulating that at least 20 percent of every shipment of gold must be set aside for jewellery and other sales overseas.
Some 16 percent of India's total merchandise exports are made up of jewellery and gems, estimated at about 70 tonnes each year. Authorised gold importers such as banks and gold trading agencies must ensure at least 20 percent of every lot of imported gold "is exclusively made available for the purpose of export", the bank said. The rupee gained against the dollar to 59.35 early Tuesday after the bank's gold measures, but it lost ground later in the day to reach 59.72 to the dollar.
Vinod Hayagriv, a board member of the All India Gem and Jewellery Trade Federation (GJF), described the new rules as "myopic". The restrictions will "create a shortfall of the precious metal and reduce the availability of official gold", he said. Gold and oil imports are the biggest contributors to India's current account deficit, the broadest measure of trade, that hit a record 4.8 percent of gross domestic product in the financial year ending March as imports outpaced exports.
The bank's move comes after India twice raised the import duty on bullion earlier this year to discourage gold-buying. Hayagriv said the measures "look like a case of being driven to a corner and brandishing a sword wildly, while not knowing who the enemy is". Gold is hugely popular in India, especially during religious festivals and wedding seasons. But Finance Minister P. Chidambaram last month implored Indians to "resist the temptation to buy gold" with the rupee's value also slumping. "India does not produce an ounce of gold. You pay in rupees, but the government has to spend dollars to buy gold," Chidambaram said.