In a move aimed at curing round-tripping, the Directorate General of Foreign Trade (DGFT) on Wednesday further tightened the norms for import of gold by four-star and five-star export houses with Nominated Agency Certificate and doing big business in the yellow metal.
Through notification 34, issued on October 18 amending the rules, DGFT effectively barred these export houses from importing for domestic consumption. “Henceforth, no nominated agency certificate shall be issued/renewed for four-star export house and five-star export house status holders. Import of gold by four-star and five-star houses with existing nominated agency certificate will be subject to actual user condition. They will be permitted to import gold as input only for the purpose of manufacture and export by themselves during the remaining validity period of the nominated agency certificate,” DGFT explained.
Through yet another public notice, DGFT withdrew the Power of Regional Authorities of DGFT to issue/renew Nominated Agency Certificates.
Industry sources explained that some export houses were inflating the amount of exports for which they were exporting gold, virtually without value addition, and retaining their export house status. This was helping them import gold and sell 25 per cent of that in the domestic market and earn a premium, as well as a marginal profit that banks importing gold for domestic markets would otherwise earn.
Now, only those export houses will be permitted to import gold which are bringing them as input for the manufacture and export by themselves during the remaining validity of their Nominated Agency certificate.
A veteran of the gold export business said when the government restricted gold imports in 2013, putting an 80:20 condition mandating importers to use or sell 20 per cent of the total gold imports for the purpose of export. The actual user condition at the time was imposed for the import of gold by star export houses. That was withdrawn later and a window to import gold without actual user condition remained open.
Star export houses imported gold by producing bank guarantees for re-exporting within a stipulated time without paying any duty. However, they were allegedly not following the value-addition norms for re-export. Besides, they sold imported gold in the domestic market at a premium, using that money without any interest as a cheaper substitute for bank finance. Before the normal permissible period for re-export, they bought back gold and re-exported 23-24 carat jewellery or medallions. Last August, the government had banned the export of jewellery and medallions of more than 22 carat which disincentivised exports, especially low-value-addition export, known also as round-tripping.
The scale of round-tripping is estimated at between 120-130 tonnes every year. But, Wednesday's decision of not renewing nominated agency certificates and restricting gold imports by four- and five-star export houses on actual user condition would further disincentivise round-tripping, according to the bullion industry veteran quoted earlier.