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3,000kg of gold being smuggled in a month, claims Chidambaram

New Delhi: Finance Minister P Chidambaram admitted on Monday that gold smuggling has increased in the wake of higher duties and other curbs on the import of the yellow metal into the country. The Finance
India TV News Desk January 28, 2014 12:42 IST
India TV News Desk
New Delhi: Finance Minister P Chidambaram admitted on Monday that gold smuggling has increased in the wake of higher duties and other curbs on the import of the yellow metal into the country.

The Finance Minister said that there has been about 1-3 tonnes of gold smuggled into the country every month following the restrictions imposed on shipment last year.

"I know gold smuggling has increased... But the restrictions on gold import were absolutely necessary because it is these restrictions which have brought down gold import which in April and May had crossed 300 tonnes . "If we had not imposed restrictions, there was no way we could have managed balance of payments or the CAD," he said.

Faced with intense pressure to relax gold import curbs, Chidambaram said the restrictions will be reviewed by March end.

"I am confident that by the end of this (financial) year we will be able to revisit some of the restrictions on gold import but we will do so only when we are absolutely sure that we have a firm grip on the current account deficit," he said while addressing tax officials at the Customs Day here.

While admitting that the curbs have led to an increase in gold smuggling into the country, the Minister said these restrictions were necessary to contain the current account deficit (CAD), which touched a record high of $88.2 billion in 2012-13.

The CAD in the current fiscal is expected to soften significantly to $50 billion.

Gold imports, which had peaked to 162 tonnes in May, came down to 19.3 tonnes in November after the government hiked import duty thrice in 2013, taking it to 10 per cent.

Besides, the Reserve Bank has also linked imports of the precious metal to exports amid a widening CAD and depreciation of the rupee.

The imports in December was a "little higher" than in November, Finance Secretary Sumit Bose told reporters. With the clamour for a duty cut on gold imports growing, Congress President Sonia Gandhi had last week written to Commerce Ministry to take appropriate action on the demands of gems and jewellery exporters to reduce import duty and relax 80:20 rule for import of the metal. Gold is the second biggest component in the import bill after crude oil.

Chidambaram said: "While we have lost some in perhaps tightening the gold smuggling, we have gained tremendously in terms of controlling the CAD and being able to manage the balance of payments and bringing about large stability in the currency," he said.

To restrict gold imports, the RBI in August last year had said entities should ensure that at least one-fifth, or 20 per cent, of every lot of import of gold is exclusively made available for the purpose of exports and the balance for domestic use.

The government expects to bring down the CAD, which is the difference between the inflow and outflow of foreign exchange, to $50 billion in current fiscal from $88.2 billion in 2012-13. Chidambaram said the long-term method to control the CAD is not to indulge in policy repression by restraining the import of gold.

"The long-term goal is to increase exports. We have to earn as many dollars as we need through exports to pay for imports. We need to find ways to increase exports," he said.

For the April-December period, exports aggregated $230.3 billion and imports $340.3 billion, with the trade deficit at $110 billion. In value terms, gold and silver imports in April-December period declined 30.3 per cent to $27.3 billion from $39.2 billion during the same period a year earlier.

The CAD in the first half (April-September) of current fiscal narrowed to $26.9 billion (3.1 per cent), from $37.9 billion (4.5 per cent) in the first half of 2012-13. Declining gold imports has also contributed to the improvement in CAD, which dropped to 1.2 per cent in second quarter, as against 4.9 per cent in the first quarter.