In what industry-watchers say is a move aimed at curtailing circular trading or “round-tripping” as it is known in the country, the Indian government has banned the export of all gold products with a purity above 22 karats.
Indian exporters are allowed only to export finished jewellery. But medallions and bars with simple embossing can be exported as finished product. This category makes up 15 percent of the country’s jewellery exports. If an Indian firm exports the medallions to its own offices in a country that has a free trade agreement (FTA) with India, the same product can then simply melted into unmarked bulion and be re-imported as primary gold, duty free.
This “round trip” then entitles the export firm to higher bank credit lines and other government benefits.
There has been a spike in gold imports, particularly from countries like South Korea, with which India has a free trade agreement (FTA). This enables importers to escape paying the 10 percent import duty on gold.
The government is also looking at a new comprehensive gold policy, with a slew of new measures being considered. One measure that might be considered is proposal to vary the Goods and Services Tax (GST) on the sale of gold so that the imports of jewellery from countries that have FTAs with India do not undercut domestically produced products that have been manufactured with more expensive gold that has been imported by paying the 10 percent import duty.