The Reserve Bank of India (RBI) has announced it has relaxed some of the trading conditions for the import of gold following several increases to import duties last year.

Hiking the tax rate, which began 2013 at 2 per cent and ended the year at 10 per cent, was a decision made in an effort to reduce the country’s current account deficit.

This had risen to a record level of 4.8 per cent of gross domestic product (GDP) in 2012-13 – the equivalent of US$88.2 billion. Estimates currently put the deficit at US$32 billion or 1.7 per cent of GDP, indicating the rise in gold levies has worked.

The measure has also improved the rupee’s financial strength, with the currency slipping to sub-58 level against the dollar, having been as high as 68 in August.

With India’s deficit under control, the RBI revealed select trading houses – in addition to already permitted banks – can now purchase precious metals to boost exports.

Previously, the central bank had imposed a 80:20 rule on select financial institutions, which meant one-fifth of all imported gold must be earmarked for export. The remaining 80 per cent could go to domestic uses.

However, the RBI has now expanded the scheme past just banks and now other organisations can take advantage of the initiative.

“Star trading houses [and] premier trading houses, which are registered as nominated agencies by the director-general of foreign trade, may now import gold under 20:80 scheme,” the RBI said in a statement.

Lobbying from traders

Part of the reason the country’s central bank has eased restrictions is because a number of industry organisations lobbied for change after the gold import duties affected the success of India’s jewellery industry.

Gold bullion dealers, trade bodies and jewellers themselves made representations to the RBI, and the organisation subsequently agreed to allow more imports.

“Taking into account such representations and in consultations with the Government of India, it has been decided to modify the guidelines for import of gold by the nominated banks, agencies [and] entities,” the bank added.

Financing rules have also been eased, allowing banks to provide gold metal loans to jewellers across the country.

The news was welcomed by the All India Gems and Jewellery Trade Federation, which told Bloomberg that inbound shipments could expand by up to 10 to 15 tonnes a month.

“Supply will increase, bringing down the prices and premiums in the local markets and we will see demand improving,” said Bachhraj Bamalwa, a director with the federation.

According to Mr Bamalwa, the fees jewellers typically pay to importing banks and gold bullion dealers could drop to $40-50 an ounce in the next two weeks, slumping as much as 50 per cent on the $90 per ounce currently.

However, gold import taxes remain at 10 per cent and the 80:20 rule requires the precious metals put aside for export to be shipped out before another consignment can be ordered. This lack of gold supply has led to a smuggling rise in the country.