 "Under utilisation of gold jewellery capacity is an intended consequence: FM")
Union finance minister P Chidambaram on Saturday reiterated the Ministry's stand to restrain gold imports for jewellery manufacturing for domestic market and said that the government is fully aware that the gold jewellery industry will be affected to some extent.
At FIEO's interactive session in Chennai today, Bhaskar Bhat, managing director of Titan Industries, has requested the Government to review the customs duty as the increase in customs duty to a level in which the imports are almost banned is leading to significant smuggling of gold, while the concerns are also on controlling the Current Account Deficit.
Responding to which the Finance Minister said, the government will not do away with the restrictions and it has brought out the policy knowing well of the impact on the domestic jewellery makers.
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gOur policy today is we are constraining, or restraining, such gold coming into India for conversion into jewellery. That is a deliberate policy we have taken. There is a huge amount of gold within the country, if that gold comes out and it is traded and it is commercialised, and buy that gold and use it for gold jewellery, we have no problem,” he said.
The under utilisation of gold jewellery capacity is an intended consequence, said the Finance Minister.
The Tata Group company in its representation said, “...the whole process is being monitored by the Customs Department and even though the rules were published over a month back, the actual implementation of the same on the ground is far from smooth. This has resulted in gold imports falling very sharply and consequently smuggling of gold seems to have increased considerably”.
The company quoted HDFC Securities report and stated the estimate of gold shortage could be between 83 tonnes and 135 tonnes in the second half of this fiscal and in their view, this shortage will be filled through “unofficial” channels.
Responding to which the Finance Minister said the government will take care of smuggling and industry do not have to worry on that.
Titan Industries also urged that the Government should introduce quota system where import licences are issued to bonafide jewellery manufacturers based on audited domestic and export sales. The company also said if the Government's intent is to actually curtail gold quantity imports, they could do so without imposing schemes like the 80:20 rule.
The Government of India and Reserve Bank of India have over the last four months, imposed several measures to control gold imports to the country to control the Current Account Deficit issue that the country is currently facing. Some of the measures have impacted the business of organised players like Titan very significantly.
The scarcity of “official” gold has made the premiums in the market for gold to shoot up significantly in past few months and at times have exceeded Rs 200 per gram of gold.
The other major issue that has “adversely” affected was the withdrawal of the “gold on lease” scheme. The Scheme, while offering credit to the jewellery industry which operates on very low margins at affordable rates, also acted as the perfect hedging mechanism.
gIn this absence of this, we are finding it is very difficult to hedge our gold positions in the domestic commodity exchange, MCX. The volumes in the exchange are fairly low and therefore liquity is a problem and secondly as the volume of transaction is also low, we have been sanctioned limits to hedge that only cover about 50% of our requirment,” added the company.
It added that the RBI is yet to decide on its request to allow to hedge in the international market. The company requested the Government to issue of permitting 'Gold on Lease' be reconsidered for companies which are holding a valid import licence.