India has told Thailand that it will impose six-10 per cent duty on gold jewellery imports in the proposed free trade agreement (FTA), according commerce ministry sources. The move is aimed at curbing a spurt in gold jewellery imports in recent times, which may rise further as the government raises Customs duty on gold imports.
However, the commerce ministry has ruled out a total ban on gold imports from Thailand.
"Negotiations for the FTA are still going on. We have taken up the issue with Thailand. We believe duties on gold have to be consistent with our domestic policy. But, we are definitely not going to impose a ban on its import. The response from Thailand is awaited," said a commerce ministry official.
Imports of gold jewellery from Thailand are not a major cause of widening India's current account deficit (CAD) as these stand at a mere 0.02 per cent of overall gold imports into the country. However, the government is worried it may surge after the hike in Customs duty on gold. Notably, gold jewellery imports from Thailand saw a huge jump in the first eight months of the current financial year, particularly in October and November after the government announced hike in Customs duty. If the trend persists, this may not only widen India's CAD, but may also put domestic jewellers at a disadvantageous position.
Currently, India has early harvest scheme (EHS) with Thailand under which gold jewellery is imported at zero per cent since 2004. This concession is available only if there is minimum 20 per cent value addition in jewellery in Thailand before coming to India.
India cannot increase duty on import of gold jewellery under EHS and has to depend on the proposed FTA. "Now that the government has frozen the rate under EHS, it will not be able to re-impose the duty. To do that, they will have to restart the negotiations from the beginning under FTA talks, said Ajay Sahai, director-general, Federation of Indian Export Organisations (FIEO).
The government suspects that the norm of value addition of 20 per cent is not being adhered to. In fact, instead of gold jewellery, gold is being imported into India, it is suspected. Besides, most gold jewellery imported from Thailand is reportedly coming from China and Malaysia since Thailand is not a known gold jewellery producer.
It is only in the recent years that imports of gold jewellery have risen substantially from Thailand due to the increase in Customs duty on imports from other countries.
During April-November 2012, gold jewellery imports from Thailand stood at $92 million against just $13 million in the entire FY12, said Sahai. Most of these imports - $72 million - came in just two months - October and November. This is nothing compared to overall gold imports to India. Gold imports, including jewellery, stood at $56.5 billion in FY12, which had widened India's CAD to a record 4.2 per cent of the GDP.
In the first nine months of FY13, gold imports declined 15 per cent to stand at $38 billion. Gold and oil imports were the prime reasons for widening India's CAD to a record 5.4 per cent of GDP in the second quarter of FY13. While oil imports cannot be curtailed beyond extent, the government is trying hard to curb import of gold. Earlier this month, the government had increased Customs duty on standard gold bars by two percentage points to six per cent to cut down imports of the precious metal into the country.
In January 2012, basic Customs duty was increased from Rs 300 per 10 gram to an ad valorem rate of two per cent on standard gold bars and on non-standard gold bars to five per cent. Further, in the Budget in March 2012, it was doubled to four per cent and 10 per cent, respectively.