KOLKATA (miningweekly.com) - The Indian government’s plans to ease the dependency on tariffs as a tool to check gold imports and instead bank on monetisation instruments to curb inward shipment of the precious metal, has hit a road block.

It was suggested that more players were seeking to be active participants in the government’s gold monetisation plans, with the government promising industry participants further discussions on bringing an estimated 20 000 t of household gold into circulation.

It was thought that efforts to ease demand-side pressures would take longer than anticipated, a senior government official in the Commerce Ministry said.

The federal government in the national Budget 2015/16, presented before Parliament on February 28, committed to floating new financial instruments, including the Gold Monetisation Scheme and Sovereign Gold Bond, as asset classes to woo households with idle gold holdings into monetising gold into financial instruments.

However, various gold market intermediaries, gold refiners and associations, including the Indian Bullion and Jewellers’ Association, have submitted representations and sought discussions with the Finance Ministry seeking to be participants in the monetisation schemes, in an effort to stop the market for such instruments being the sole domain of commercial banks, as proposed by the government.

Though officially not stated, it was hinted that gold monetisation schemes were expected to face some opposition from nonbanking finance companies, and those offering loans against gold have market shares in lending greater than many of the commercial banks.

It was anticipated that with a new asset class for gold available for investors, demand for raising cash by mortgaging gold might taper off.

Simultaneously, with around 65% of domestic gold holdings accounted for by rural households for social purposes, a section of bankers doubted whether paper financial assets would entice rural households to part with precious metal in exchange of such instruments.

Gold market intermediaries seeking participation in monetisation schemes have also demanded that the scheme should be made investor friendly and the latter should not be quizzed on the quantum of gold offered for participating in investment schemes.

Citing examples, they said that the government had already made it mandatory for gold jewellery customers to submit their income tax Permanent Account Number (PAN) for purchases in excess of Rs 100 000 ($1 600),  impacting negatively on sales. Any similar condition for the gold monetisation scheme would be impractical since most rural householders with primarily agriculture income did not have PAN registrations.

According to officials, the government reading was that using import tariffs as an instrument to check gold imports had run its course and was proving to be counter-productive as it was leading to a rise in smuggling.

Junior Finance Minister Jayant Sinha informed Parliament last month that curbs on gold imports, including a 10% duty, had led to a spurt in gold smuggling.

Government data showed that during the period April to January 2014/15, investigating agencies had seized gold worth $150-million smuggled into the country.

However, despite the rising gold imports into the country over the past few months, the country’s comfortable current account deficit (CAD), a fall-out of soft global oil prices, offered the government some leeway and opportunity to hold wider consultations with all gold industry stakeholders to smoothen any rough edges in the planned gold monetisation schemes.

Latest government data showed that gold imports during 2014/15 were pegged at 152.33 t against 92 t during the corresponding period of the previous fiscal.  During March 2015, imports have been estimated at 20.73 t against 9.3 t during the corresponding month of the previous year.

But the country’s CAD was down to 1.6% of gross domestic product during October to December 2014, from 2% in the corresponding period of the previous year despite the gold import bill rising to $11-billion, up from $7.6-billion in the corresponding previous period.

Even though gold constituted the second highest import bill after oil, the falling global oil prices provided the government that much more time to finalize gold monetisation schemes, officials added.