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Through three weeks, jewellery exporters have seen a fall in the supply of gold and this has hit the fabrication segment. The fall resulted from delay by the Directorate General of Foreign Trade in clearing gold procurement requests by manufacturers. Also, nominated agencies have deferred supply to bulk consumers amid expectations of rationalisation in import duty.
According to Reserve Bank of India (RBI) guidelines, nominated agencies should make 20 per cent of the imported gold available to jewellery exporters. On producing proof of exports (20 per cent of the imported quantity), they are allowed another lot of imports. This norm, implemented in August last year, was aimed at curbing gold imports into India and cut the country’s burgeoning current account deficit (CAD).
“Despite showing proof of jewellery exports, authorities have been holding on to the requests of jewellery manufacturers for several weeks. For the last three weeks, there was virtually no supply of gold to jewellery exporters, a dry spell for them,” said Pankaj Parekh, vice-chairman, Gems & Jewellery Export Promotion Council (GJEPC).
In June, GJEPC had urged the commerce ministry for a cap on gold imports, instead of a complete ban on those. Subsequently, the government had directed RBI to come out with 80:20 formula, under which at least 20 per cent of the imported gold would have to be made available to jewellery exporters. “Those who discovered a way for the government are being penalised with non-availability of raw material. How exporters will survive has become a big question,” Parekh said.
Before August 14 last year, the day RBI introduced the 80:20 formula, exporters also faced supply restrictions on the quantity allocated under the Advance Authorisation (AA) and Duty Free Import Authorisation (DFIA) scheme.
However, on Friday, RBI clarified the condition of sequencing imports before exports wouldn't be insisted upon, even in the case of entities in special economic zones, export-oriented units and premier and star trading houses in case of AA/DFIA issued before August 14. Also, imports through the AA/DFIA schemes will be outside the purview of the 80:20 scheme; these imports will be accounted for separately and wouldn't entitle the nominated agency/banks/entities to further imports.
The central bank added entities importing gold could make the commodity available to exporters (other than AA/DFIA holders) under the replenishment scheme. Such imports, too, would be accounted for separately and wouldn’t entitle the entities concerned to more imports, it added.
The fall in gold supply was accentuated by the fact that nominated agencies didn't release the commodity, as they were expecting rationalisation in import duty (currently a staggering 10 per cent). “There are rumours of relaxation in import duty on February 17. Therefore, importing agencies are holding on to quantities. Most banks we spoke to suggested one wait till February 17,” said Haresh Soni, chairman, All India Gems & Jewellery Trade Federation.
RBI’s clarification will provide a breather to jewellery exporters. Under the replenishment scheme, exporters will be able to manufacture and export jewellery of gold procured from customers through re-sale. On receiving the remittance, they would be able to claim duty-free gold supply, enhancing foreign currency income without any impact on the CAD, Parekh said.
