Two weeks ago, gold jumped to a then-2014 high, following reports out of India that the head of India’s Congress Party, Sonia Gandhi was pushing the government to cut its duty on gold and other restrictions. Today, now that the upward move in gold has finally resumed, it appears that the nation with the world’s most draconian gold capital controls, is finally starting to crack under pressure from the people, as well as a surge in gold smuggling via illegal channels to unprecedented levels. Reuters reports that India “will look into relaxing gold imports curbs, but won’t let its current account deficit (CAD) balloon, Finance Minister P. Chidambaram said on Monday.”
“There are pros and cons (on easing gold import curbs), we will weigh them carefully, the goal is to contain the CAD at a level where it can be fully and safely financed,” Chidambaram told reporters after presenting the interim budget in parliament earlier.
“The operative word is, we will look into it,” he said.
India, desperate to trim a gaping current account deficit, took a slew of measures last year to curb demand for bullion, its second-biggest import after oil.
Industry participants had expected a cut in import duty from the record 10 percent on gold in the interim budget.
Due to the restrictions on imports, China has surpassed India as the world’s biggest buyer of gold.
Of course, to borrow a line of thought from economists, while China may have overtaken India in official gold transfers the Indian demand for gold is still there, “pent up” and as vibrant as ever, and in fact should the government finally undo one or all of its anti-gold capital controls, all demand hell may break loose.
Just how pervasive are said controls? Below is a partial list we put together last year. Should the government’s resolve begin to truly crack, the “price discovery” result could be more violent than if the PBOC were to announce today what its true gold holdings currently are.
- 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%