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Union finance minister P Chidambaram reiterated the ministry's stand to restrain gold imports for jewellery manufacturing for the domestic market and said the government was fully aware of the affects to the jewellery industry.
At the Federation of Indian Export Organisations (FIEO) interactive session in Chennai, Bhaskar Bhat, managing director of Titan Industries, requested the government to review the customs duty. At the current level of customs, the country is witnessing significant gold smuggled in to the country.
Responding to it, FM said, the government will not do away with the restrictions and has brought out the policy knowing well of the impact on the domestic jewellery makers.
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"Our 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. We have no problem if you buy that gold and use it for jewellery. The under-utilisation of gold jewellery capacity is an intended consequence, said the FM.
Titan Industries, 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 was 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 -135 tonnes in the second half of this financial year. In their view, the shortage will be filled through “unofficial” channels.
To this, FM said the government will take care of smuggling and the industry doesn't have to worry on that.
Titan Industries also urged 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 imports, they can do so without imposing schemes like the 80:20 rule.
Union government and Reserve Bank of India have over the last four months imposed several measures to control the country's gold imports to arrest the rising current account deficit. 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 the past few months and at times have exceeded Rs 200 per each 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.
"In the absence of this, we are finding it very difficult to hedge our gold positions in the MCX. The volumes in the exchange are fairly low and therefore liquidity is a problem. Secondly, as the volume of transaction was also low, we have been sanctioned specific limits to hedge that only cover about 50 per cent of our requirement,” added Titan.
