The DGFT issued the notification withdrawing the facility given under a free trade agreement (FTA) with South Korea signed in 2009 regarding gold, silver and their articles.
Sudheesh Nambiath, Lead Analyst (Precious Metals Demand), GFMS Thomson Reuters, said: “Since July approximately 27 tonnes were imported at zero import duty from South Korea. Initially a few importers were importing and in July only 10 tonnes of gold arrived under this route but in three weeks of August, 17 tonnes came to India. Imported goods included gold jewellery and articles including coins and medallions also came.”
He said 25 importers, big and small, brought in gold under this facility.
The notification is timely because it was a case of blatant misuse of the facility, violating the spirit of the free trade agreement. Ninety per cent of the import is said to have been done by the top five importers.
Importers also kept changing items of import or declarations under different customs codes.
As a result of the duty-free imports, the Indian bullion market was quoting at a huge discount of $20 per ounce (Rs 425 per 10 gram), resulting in virtually halting duty-paid import and paralysing the organised trade.
Shekhar Bhandari, executive vice-president, global banking, Kotak Mahindra Bank, said: “Organised gold imports have been affected significantly. There is an estimated revenue loss of Rs 750 crore on account of imports under the FTA.”
He added this was destroying the regulatory framework.
The impact of Indian imports from South Korea was felt elsewhere. Samson Li, senior analyst at GFMS, said: “South Korea has a refining facility for approximately 120 tonnes per year.” India's import shows levels of violations. According to sources, refined gold was sent to South Korea from Dubai, which resulted in Dubai gold discounts turning to marginal premium. Not only that, gold premiums in South Korean exchanges were meagre and did not move much, indicating gold was not manufactured in South Korea, an essential condition for zero duty import by India under the FTA.
The seriousness of the matter was felt by the government when it was found, according to officials, that gold coming from Dubai was not LBMA (London Bullion Market Association)-certified and perhaps conflict gold from African countries may have entered India.
When the goods and services tax (GST) was introduced at 3 per cent, the countervailing duty of 12.5 per cent applicable to such imports was subsumed in the GST and this facilitated duty-free imports.