A big spike in gold imports from countries with which India has trade agreements has caused alarm in the government, which now plans to exclude the yellow metal from such agreements in the future. “Provisions of trade agreements have been abused to import gold at zero or lower duty,” a government official said. The surge in gold imports has worsened the country’s current account deficit.
The issue has been discussed between the ministries of finance and commerce and industry, the nodal ministry for negotiating trade agreements, the official said.
The finance ministry is of the view that gold should be kept out of free-trade agreements (FTA) India negotiates going ahead. The country is at present negotiating an FTA with the European Union, and the Regional Comprehensive Economic Partnership (RCEP), a proposed FTA between Asean member states and six Asia pacific regional countries including India, China and Japan.
India’s gold imports have tripled to $15.24 billion, or about Rs 97,665 crore, during April-August from $5.08 billion in the same period last year, latest data from commerce ministry show. As a result, trade deficit for the period almost doubled to $63.1 billion, or about Rs 4,04,787 crore, from $34.3 billion.
The initial surge was being attributed to purchases before the goods and services tax (GST) that was unrolled on July 1, but further spike in August has come as a surprise.
Gold imports were up 69% in August to $1.89 billion, or about Rs 12,125 crore, from $1.12 billion a year earlier.
India’s overall current account deficit (CAD) worsened to 2.4% of GDP in April-June quarter against 0.1% of GDP in the corresponding quarter last year.
Under the current rules, 10% basic customs duty is levied on gold imports from countries with which India has no trade agreement.
In addition, there is a 3% integrated GST levied on such imports in lieu of countervailing duties levied earlier.
In contrast, gold can come duty free through some of the countries with which India has a trade agreement. They only face 3% IGST.
Most recently, the surge came via South Korea from which gold is allowed to be imported duty free under the 2010 trade agreement between the two countries.
Late last month, the government banned duty free imports from South Korea. Abuse of provisions in trade agreement came to light when there was a spike in imports from Thailand. New Delhi subsequently raised customs duty to discourage the inflow of yellow metal to contain current account deficit. Investigation agencies found blatant violation of rules of origin in this case, prompting India to impose restrictions. These restrictions included a bank guarantee of customs duty, levied on normal imports.
Imports from third countries using members of in a trade agreement as a base to route imports didn’t stop with Thailand. A new alternate soon emerged in Malaysia under the India-Asean agreement and soon after under India-Korea trade agreement.
Gold imports from South Korea stood at $339 million between July 1 and August 3 against only $70.5 million in the entire 2016-17, according to commerce ministry data.