India Drops Gold Import Restrictions

(IDEX Online) – The Reserve Bank of India (RBI) has dropped restrictions on gold imports imposed last year in a bid to slash the country's severe current-account deficit.

India is the world's second-largest consumer of gold, which is traditionally used for jewelry and as one of the main sources of savings in the country where hundreds of millions of people do not have bank accounts.

The RBI, India's central bank, said the government had ended the rule that gold importers show that a minimum of 20 percent of the yellow metal they imported would end up as jewelry exports. The government's requirement had the effect of boosting gold prices as imports fell, and led to a sharp rise in gold smuggling.

The restriction on imports came into force in August 2013 and was aimed at reducing India's expanding current account deficit.

The trade deficit hit the rupee which dropped by more than 20 percent against the dollar.

The country's current-account deficit decreased to 1.7 percent of GDP in the second quarter of this year from 4.8 percent previously, enabling the government to end the restriction.

Gold traders and jewelry makers had lobbied the government to repeal the restrictions following the drop in India's deficit. "We had impressed upon the government the need to remove the rule," said Harish Soni, chairman of the All India Gem and Jewellery Trade Federation.