Flooded By Gold Smuggling, India's New Cabinet Prepares To Lift Gold Capital Controls
By GCRU Gold News on Thursday, May 22 2014, 13:30 - Permalink
Recall that India is a country which, in order to keep its current account deficit at bay, instituted the most draconian gold capital control measures in history to prevent its population from taking refuge from scorching inflation and parking its fiat in gold. An incomplete summary of the measures taken in 2013 by India is summarized below.
Jan 21 - The government raises the gold import duty by 2% to 6%.
Jan 22 - The government more than doubles the duty on raw gold to 5%. Jan 30 - Finance Minister P. Chidambaram says there are no plans for additional taxes or curbs on gold imports. Feb 1 - The Reserve Bank of India (RBI) plans to introduce three or four gold-linked products in the next few months. Feb 6 - The RBI says it would consider imposing value and quantity restrictions on gold imports by banks. Feb 14 - The central bank relaxes rules on gold deposit schemes offered by banks by allowing lenders to offer the products with shorter maturities. Feb 20 - The Trade Ministry recommends suspending cheaper gold jewellery imports from Thailand. Feb 28 - India keeps its gold import duty unchanged in its annual national budget, defying industry expectations. Feb 28 - India proposes a transaction tax of 0.01% on nonagricultural futures contracts, including for precious metals. March 1 - The Finance Minister appeals to people not to buy so much gold. March 18 - The Reserve Bank of India says it is examining banks that sell gold coins and wealth management products to identify "systemic issues", with a view to closing any legal loopholes. April 2 - The Finance Ministry suggests it is unlikely to raise the import tax on gold further to avoid smuggling and would instead introduce inflation-indexed instruments. May 3 - The RBI restricts the import of gold on a consignment basis by banks. June 3 - The Finance Minister says India cannot afford high levels of gold imports and may review its import policy. June 5 - India hikes the gold import duty by a third, to 8%. June 21 - Reliance Capital halts gold sales and investments in its gold-backed funds. June 24 - India's biggest jewellers' association asks members to stop selling gold bars and coins, about 35% of their business. July 10 - India's jewellers announce they might continue a voluntary ban on sales of gold coins and bars for six months. July 22 - The RBI moves to tighten gold imports again, making them dependent on export volumes, but offers relief to domestic sellers by lifting restrictions on credit deals. July 31 - India hopes to contain gold imports well below the 845 tonnes that were shipped last year, the Finance Minister says. Aug 13 - India hikes the import duty on gold for a third time in 2013, to 10%. Duties for silver and platinum are also increased to 10%. The customs duty on gold ore bars, ore, and concentrate are increased to 8% from 6%. Aug 14 - India turns the screws on gold buying again, banning imports of coins and medallions and making domestic buyers pay cash. Aug 29 - India considers plan to allow commercial banks to buy gold direct from ordinary citizens Sept 19 - India hikes import duty on gold jewerly to 15%
For better or worse, this attempt to crush popular demand for gold merely resulted in soaring and increasingly more ingenious attempts to smuggle gold into the country, which however do not register in the official data, and as such, the government no longer has an accurate perspective of what true capital flows look like.
However, the current regime of gold demand suppression may be ending soon, and all the demand for gold, pent up over the past year and likely amounting to billions of dollars, may soon bubble right back to the surface. Reuters reports that the Reserve Bank of India and finance ministry officials will recommend that the new government relax strict gold import rules to head off a surge in illegal buying, officials with direct knowledge of the plan said.