India is a globally significant market for gold business, but interestingly India does not produce a considerable amount of gold that can meet huge domestic demands. India stands at the second position in terms of gold import globally, after China. The country imports gold in the form of gold bars, which is governed by the Reserve Bank of India (RBI), the central bank. Amid the pandemic, India has imported the precious metal worth $34.6 billion in the last fiscal, against $28.2 billion in the previous fiscal. This year too, India has increased its gold imports massively, although the prices are muted than earlier levels.
According to the latest Union Budget, gold now attracts 7.5% customs duty, which was a reduction from earlier 12.5%. Indians import gold in bulk and to keep the price in control FM Nirmala Sitharaman took the decision that has been implemented in this fiscal. However, India now imposes a separate 2.5% cess on gold.
Rules on who can import gold in India?
The list of entities that can import gold in India is notified by the Directorate General of Foreign Trade (DGFT). An individual of Indian origin having a valid passport can import gold, only after an issue of license by the DGFT. The list of entities, who can import gold in the domestic market, follows:
Metals and Minerals Trading Corporation Limited (MMTC)
Handicraft and Handloom Export Corporation (HHEC)
Project and Equipment Corporation of India Limited (PEC)
State Trading Corporation (STC)
Diamond India Limited (DIL)
Gems & Jewellery Export Promotion Council (G&J EPC)
Star Trading House (only for Gems & Jewellery sector) or a Premier Trading House
Any other agency authorized by the RBI
For the consignments of the yellow metal, the importers have to submit the report of their utilization and proof of evidence to the Central Excise Office of India. The Central Board of Indirect Taxes and Customs (CBIC), Ministry of Finance ascertains the gold import regulations in India. This year, CBIC has exempted gold and silver imported under export promotion schemes from Agriculture Infrastructure and Development Cess (AIDC), in the public interest.
Returning Indians who have been out of India for more than 6 months and are returning home, can import gold but have to pay duty in the convertible foreign currency. Important banks like the SBI, including a few foreign banks, are also allowed to import gold and silver at the normal duty.
Restrictions on gold imports
Indian entities have to import gold in the form of gold bars, and the form of coins and medallions is prohibited by the RBI. Imports of the yellow metal should be routed through only custom bonded warehouses. One entity cannot import more than 10 kg of gold (including ornaments) per passenger. Entities under the SEZ and EOUs, Premier and Star Trading Houses are permitted to import gold only for exports, and not for any other purpose. No gold ornament studded with stones and pearls is permitted.
To import gold, entities can check schemes offered by the State Trading Corporation (STC) of India, a union government enterprise; STC imports gold of 100 gm and 1 Kg bars with 0.995 and 0.999 purity, for traders or jewellery manufacturers.
Which country is the largest gold exporter to India?
Switzerland, Saudi Arabia, and China are those countries to export a large amount of gold to India. In earlier years the middle eastern countries always remained the major source of India's gold. However, Switzerland, in the last fiscal strengthened its position as India's one of the most significant import partners because of increasing gold imports from the country and replaced Saudi Arabia to become the 4th largest import partner of India. Gold imported from Switzerland accounted for almost half of India's total gold imports. On the other hand, Dubai, the gold city is also a significant place from where India imports gold.
Gold under the government reserve
Robust promotion of RBI's Sovereign Gold Bond scheme, Gold ETFs, and digital gold purchases have muted the demand for physical gold only a bit. The increasing price of gold has influenced investors to focus on the long-term return from gold, and not only on gold ornaments. But in the case of digital gold or SGB, RBI has to store gold at their warehouses. So, to meet the increased demand, RBI has imported a record amount of gold from the foreign market. These golds are not imported by other entities but directly purchased by the RBI.