In addition to its crackdown on cash, India stepped up its attack on gold. The aim is to cut down on gold imports. India does that in a roundabout way, by cracking down on exports.
India has banned the export of gold products with purity above 22 carats with immediate effect, a move that the industry sees as a way of curbing irregularities in the trade.
The Directorate General of Foreign Trade issued a notice limiting shipments of jewelry, coins and medallions to 22 carats or below, without giving a reason.
“The move may be to reduce round-tripping of jewelry and coins, wherein a trader can import the gold coins or jewelry at a lower import tax because of trade agreements with some countries and re-export the same stock without any value addition,” said Ketan Shroff, joint secretary of the India Bullion and Jewellers Association Ltd. The exporters would benefit from not paying the 10 percent import tax currently levied on most inbound shipments of gold, he said.
Indian imports are said to have more than doubled last month from a year ago partly due to a jump in purchases from South Korea, with which India has a free-trade agreement. Importers have previously used free-trade treaties with countries such as Thailand and Indonesia to escape the import duty.
Round-Trip Nonsense
The stated round-trip reason is nonsense. If a vendor imported gold then immediately exported it, there would be no gain to the vendor other than random price fluctuations.
Prior to this announcement, a vendor could purchase gold and hold it until he had a profit, betting either on a price rise in gold, or a plunge in the Indian Rupee.
The new rule is not a crackdown on gold exports, it’s a crackdown on gold period. India wants to punish those who trade in gold.