The GOVERNMENT of India has suspended imports of gold jewelry from Thailand, citing an "arbitrage" which has allowed sellers from other countries to sidestep India's higher import duties – a key plank in the government's campaign to reduce gold demand in the world's #1 consumer nation.
Imports to India of gold jewelry from Thailand have since 2004 enjoyed a low 1% customs duty, thanks to the so-called "Early Harvest Scheme" agreed between Bangkok and New Delhi.
Gold jewelry imported from other countries suffers a 10% duty.
Between April and November 2012, says the Business Standard, imports of gold jewelry from Thailand rose to $92 million – more than 7 times the amount imported during the previous tax year.
The jump came after India raised import duties on gold bullion – now up six-fold since the start of 2012 to 6% – and coincided with a continued series of comments from Indian government ministers hoping to reduce physical gold demand amongst the world's heaviest buyers.
Leading gold-market analysts believe the government's fight to cut imports will simply move India's gold trade to illegal channels. Smuggling was common before deregulation began in 1992.
"In view of the increasing import of gold jewelry from Thailand," New Delhi said Thursday, "the Department of Commerce has asked the Department of Revenue to issue a notification suspending the import of gold jewelry from Thailand under the provisions of the early harvest scheme, till the certificates of origin issued by Thailand are verified to our satisfaction."
Routing their gold imports through Thailand has enabled suppliers in other countries to sidestep the standard 10% duty. Now shutting this "arbitrage", the Indian government says it will need proof that the value of any jewelry passing through Thailand before reaching India has been increased by at least one-fifth thanks to work done there.
President of the Thai Gem & Jewelry Traders Association, Somchai Phornchindarak told the Bangkok Post that India's government should honor its commitment to existing trade agreements with Thailand.
Long the world's #1 consumer of physical gold, India has no domestic mine output. Its growing trade deficit with the rest of the world, which has dented the Rupee on the currency markets, hit 5.4% of GDP in late 2012.