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Gold Import Rules: India's BJP Manifesto Silent

Gold import rules not mentioned, CAD "will be brought down aggressively"...
 
NEITHER GOLD import rules nor their removal feature in the 2014 election manifesto from India's BJP – widely expected to win next month – despite the opposition party promising to review the country's clampdown on inflows within 3 months if elected.
 
Seen by some commentators as marking a "shift to the center" by the BJP, the manifesto – not launched until India's month-long voting began Monday in India's north-eastern regions – does not mention gold, bullion nor the jewelry industry.
 
The BJP manifesto does, however, promise that "Current accounts deficit will be brought down aggressively, by focusing on exports and reducing the dependency on imports."
 
The world's largest consumer of physical gold until 2013, India has no domestic gold mining output.
 
Also failing to mention gold, bullion or jewelry, the Congress Party's manifesto proposes "a minimum tariff" on manufactured goods as "an incentive" to buy Indian-made products rather than importing them.
 
BJP leader Narendra Modi has previously spoken out against India's gold import rules, imposed by the ruling Congress Party in a bid to reduce India's large current account deficit (CAD) with the rest of the world, which widened to almost 5% of GDP in 2012/2013, and blamed by the government on oil and gold demand.
 
The clampdown includes 10% duty and – since July 2013 – the "80/20 rule", requiring 20% of new gold bullion shipments to be sold for re-export before delivery.
 
"We see reports of gold smuggling reappearing," said Modi this January. "In the 1960s and 70s, when gold smuggling was big, it created the underworld, which troubles us even now."
 
Despite the anti-import rules, India's private gold demand rose more than 12% to 975 tonnes last year, according to data compiled by market-development organization the World Gold Council.
 
The Council's full-year 2013 Gold Demand Trends put India's gold smuggling "closer to the top end" of 150-200 tonnes – a figure which could widen India's official CAD by some 20% from the government's fiscal-year forecast of $45 billion.
 
Last September, the president of the leading gold trade body in India – formerly the world's heaviest consumer market but overtaken by China on visible figures in 2013 – gave its "unanimous support" to Modi and the BJP.
 
"The bullion traders across the country are quite upset with the government for its gold import policy," said Mohit Kamboj of the Bombay Bullion Association – now the India Bullion & Jewellers Association.
 
Curbing imports almost to zero last summer through confusion over the terms of the 80/20 rule, the government "has put livelihood of people in danger, whether he is a big jeweller, a big bullion trader or a small goldsmith in Mumbai, Surat and Ahmedabad," Kamboj said.
 
"Buying gold, which is almost entirely imported, worsens the current account deficit," current finance minister P.Chidambaram said in November, rebuking Modi for accusing him of blaming inflation on Indian households buying gold.
 
"I am not as educated as him," Modi had said, "but I know that inflation is not because of buying gold but because of corruption."
 
With perhaps 20,000 tonnes of gold already held by Indian households and temples – more than 1 ounce in every 10 ever mined in history – the country devoted some 10% of new savings to buying gold in 2010, according to Morgan Stanley estimates.
 
A 2013 paper from Pradyuamna Dash, associate professor of economics at the Indian Institute of Management in Raipur, puts "physical savings" in tangible property including real estate and gold at 52% of total household savings between 2000 and 2010, rising to 55% and then 64% between 2011 and 2012.
 
Refusing to count gold as a form of household saving, the Economic Advisory Council to the Prime Minister in spring 2013 blamed a " sharp drop in net financial savings of households" on what it called an "unfortunate development...the enormous increase in the import of gold." The anti-import rules were then tightened as Indian gold demand leapt further in response to the 20% crash in world gold prices.
 
Gold was further policitized in late 2013 when Modi spoke out against the government of Uttar Pradesh for ordering the excavation of a Shiva temple near a 19th century fort in Unnao, seeking 1,000 tonnes of hidden gold apparently dreamt about by a holy man.
 
Modi apologized to the seer two days later using Twitter, after Swami Shobhan Sarkar rebuked his comments, saying the gold excavation was prompted by Geological Survey reports, not a dream.
 
The swami has since urged the Reserve Bank of India to seek a further 2,500 tonnes of gold he believes to be buried in a village in Fatehpur, also in Uttar Pradesh.
 
The "gold dream" has become a key reference local politics, with incumbent Congress MP Pradeep Jain Aditya mocking the BJP's chances of winning his Jhansi seat on Wednesday as "Modi and his men daydreaming, just as the baba of Unnao was about pots of gold."

Adrian Ash is director of research at BullionVault, the world-leading physical gold, silver and platinum market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and he has now been researching and writing daily analysis of precious metals and the wider financial markets for over 20 years. A frequent guest on BBC radio and television, Adrian is regularly quoted by the Financial Times, MarketWatch and many other respected news outlets, and his views from inside the bullion market have been sought by the Economist magazine, CNBC, Bloomberg, Germany's Handelsblatt and FAZ, plus Italy's Il Sole 24 Ore.

See the full archive of Adrian Ash articles on GoldNews.

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