India's Gold Coin Import Ban "Will Stay", Smuggling Surges

Finance minister Chidambaram restates ban as illegal imports seen replacing the "white market"...

 

GOLD COINS and medallions for investment will continue to be banned from legal imports to India, the finance minister repeated on Tuesday.

 

Replying to suggestions that gold coins should be permitted for "auspicious gifts" as India's 900 million Hindus prepare for the festive season of Diwali and Dhanteras, P.Chidambaram said "I have asked banks to be very strict on gold imports. They have to scrupulously follow the [Reserve Bank of India] and government guidelines.

 

"Import of gold coins and gold medallions is prohibited. Nobody can import gold coins and medallions."

 

But in the world's heaviest gold consumer nation, " demand for gold is inelastic" counters an editorial in the Financial Express. "About 800 tonnes or more of gold, whether priced $2000 per troy oz or $1000, will land in the country somehow."

 

Seeking to reverse India's large balance of payments deficit, the Indian government has this year crushed legal gold imports. First it raised import duty into the world's heaviest gold-consuming nation to 10%, and also imposed strict financing rules, as well as restricting the type of bullion which can be delivered.

 

Finally in summer 2013, the government forced 20% of all gold imports to be set aside for re-export before it can be released for domestic sale. Legal imports collapsed to zero in July and August as importers struggled to interpret the new rules.

 

Smuggling of gold coins, bars and other items now continues to surge amid the government's anti-import measures, press reports and analysts say.

 

"Has it become the national agenda to convert a white economy of $34 billion into a grey one whether wholly or partially?" asks the Financial Express article. "Exuberance over the reduction of [the trade deficit] is flawed."

 

Opposition politician Narendra Modi, now BJP candidate as prime minister for India's 2014 elections, has meantime backtracked on ridiculing an excavation in Unnao district, where 12 members of the Archaeological Survey of India are digging for gold after a local holyman dreamt that 1,000 tonnes are buried under a 19th century fort.

 

"The premier archaeological agency has risked its credibility and raised serious professional and procedural questions," says The Hindu newspaper. "The ASI, in its defence, citing Seventh and 19th century texts, has explained that the site is important," with gold coins and jewelry being potential treasure.

 

Already backing the Indian jewelry industry's complaints against the gold coin and bullion import rules, Modi tweeted on Monday that he "salutes" the Unnao seer, whose quest for the dreamt-of gold he had called "bizarre" last week.