The government today said unless it was satisfied gold jewellery imports from Thailand had 20 per cent value addition in that country, these would be banned.
"In view of the increasing import of gold jewellery from Thailand, the Department of Commerce has asked the Department of Revenue to issue a notification suspending the import of gold jewellery from Thailand under the provisions of the early harvest scheme, till the certificates of origin issued by Thailand are verified to our satisfaction," said an official statement.
India has an early harvest scheme with Thailand. Under this, gold jewellery is imported at a duty of one per cent. This concession is available only if the jewellery has value addition of at least 20 per cent before it is brought to India. The government suspects the norm for value addition is not being adhered to. To avail of the concessional Customs duty, gold jewellery from China and Malaysia (six-10 per cent Customs duty) is often imported through Thailand.
It has been said gold imports have raised India's trade deficit. For April-January, trade deficit stood at a high of $167 billion. This put pressure on the current account deficit, which stood at a record 4.6 per cent of gross domestic product (GDP) in the first half of the financial year, against four per cent in the year-ago period.
Ajay Sahai, director general of the Federation of Indian Export Organisations, said gold prices in India and Thailand stood at Rs 30,000 for 10 gm. If there was value addition of 20 per cent, the price would rise to Rs 36,000. However, gold jewellery is being imported at Rs 31,000 for 10 gm. If the gold is imported from China, six per cent duty stands at Rs 1,860; if it is imported from Thailand, tax of one per cent on 10 gm of gold jewellery stands at Rs 310 and the arbitrage is about Rs 1,500.
The arbitrage increased after the government had increased Customs duty on standard gold bars and jewellery to six per cent in December. This was aimed at reducing gold imports. In January 2012, basic Customs duty was increased from Rs 300 for 10 gm to ad valorem rates of two per cent on standard gold bars and five per cent on non-standard gold bars. In Budget 2012-13, the rates were doubled to four per cent and 10 per cent, respectively.
Under the early harvest scheme, India cannot increase the duty on import of gold jewellery; it has to depend on the proposed free trade agreement with Thailand, negotiations for which are underway. "Now that the government has frozen the rate under EHS (early harvest scheme), it wouldn't be able to raise the duty. To do that, it would have to restart the negotiations under FTA talks from the beginning," an expert said.
India has told Thailand it would impose six-10 per cent duty on gold jewellery imports from that country, as is applicable to other countries, against one per cent proposed in FTA. It has added it wouldn't allow gold jewellery imports at concessional rates. So far, Thailand has not responded to this.
"Negotiations on the FTA are still going on. We have taken up the issue with Thailand. We believe duties 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 an official.
In 2011-12, gold and silver imports into India stood at $56.5 billion; this widened India's current account deficit to a record 4.2 per cent of GDP.
Meanwhile, India Ratings has assigned a stable' outlook to gems & jewellery exporters and a stable-to-negative' outlook to domestic gems & jewellery retailers for this year. Exporters are likely to report better revenue growth (median) this year, with margins comparable to the levels in 2012. Domestic retailers are likely to report lower revenue growth (with a possible volume decline) in 2013, along with slightly lower margins than in 2012. Retailers resorting to aggressive store additions might be hit the most, the rating agency said.