India's gold imports rocketed in October, accelerating the trend in the third quarter of 2014 and prompting the government to consider restrictions on shipments as they have a bearing on the country's current account.

However, the World Gold Council said trade restrictions will encourage smuggling, which is already rising alarmingly. It estimates that about 200 tonnes of the yellow metal would be smuggled into the country this year, which is a huge amount for a country that bought 825 tonnes last year.

October gold imports are estimated to have jumped to 148 tonnes, rising six-fold from less than 25 tonnes in the same month last year. Imports in the September quarter were up 39%.

Top officials of the finance ministry and the Reserve Bank of India met on Thursday to consider tightening import controls on gold. They agreed to meet again in a few days to take a decision, official sources said. "We have not yet taken any decision and will meet in a day or two to continue the discussion," said a finance ministry official.

The government had clamped down on gold imports last year stipulating that nominated agencies could import gold on the condition that 20% of the consignment would be exported.

The scheme, commonly referred to as the 80:20 scheme, was relaxed in May this year when RBI allowed star and premier export houses to import the commodity. Banks and nominated agencies were also allowed to provide gold for domestic use as loans to jewellers and bullion traders. Last year, the government had increased the gold import duty to 10% to check widening current account deficit.

Net gold imports into India stood at 204 tonnes in the third quarter, up 124% from 91 tonnes in the same period a year ago. But last year's figure was artificially low because of government curbs.

Jewellery demand by India during the quarter stood at 182.9 tonnes, 16% higher than the demand from Greater China, including Hong Kong and Taiwan. Demand for bars and coins by the country during Q3 was higher at 42.2 tonnes compared with Greater China's 37.1 tonnes.

The World Gold Council, the global gold miners' lobby, says smuggling is an "unintended" consequence of the government's curbs on imports.

"The demand for gold in the country is not speculative and the restrictions have had unintended consequences, like encouraging smuggling," said Somasundaram PR, MD (India), World Gold Council.

"We estimate that over 200 tonnes of total gold imports this year would be unofficial." Last year, India imported 825 tonnes. In the year through September, imports amounted to 525 tonnes. Demand usually rises in the fourth quarter of the calendar, which coincides with the festive season.

Referring to the 80:20 scheme, Somasundaram said exports of handcrafted jewellery to countries in the Middle East and South-east Asia, which comprise a sizeable portion of the diaspora, were not "visibly" apparent. "If India exports 20%, you should typically see a lot of activity in places such as Dubai and South-east Asia, which does not seem very apparent."

In rupee terms, the average price of gold at Rs 25,452.4 per 10 gm during the quarter was 6% lower than a year ago.

Source:economictimes.indiatimes.com