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India, the largest gold consumer in the world, has been creating history in importing gold all these years. While gold production is negligible in India, consumption of the yellow metal has been unparalleled in the last ..
15 Dec 2010
MUMBAI (Commodity Online): India, the largest gold consumer in the world, has been creating history in importing gold all these years. While gold production is negligible in India, consumption of the yellow metal has been unparalleled in the last several decades that the Indian households now own around 15,000 tonnes of gold.

Gold import has been the most sustainable commodities trading business in the India for the last two centuries. This year, India’s gold imports remained at the top level at the end of the third quarter in spite of the fact that the yellow metal prices hit new highs in global markets in recent months.

According to WGC in the third quarter of this calendar year, India bought 214 tonne of gold as compared to 176 tonne in the same quarter in 2009.

India has the largest gold market in the world, but the domestic production of gold has been negligible all these years. The main producers of gold in India are Hutti Gold Mines and Bharat Gold mines Limited, which annually produce about two tons.

So how does India import gold and what is the process involved. Do you know that till 1991, practically all gold import to India was through smuggling!

Read below India's gold import saga:

India has been importing substantial amounts of gold for nearly two centuries now. Between 1831 and 1931, imports of gold to India averaged 37 tons per annum. In the 1930s--during the Great Depression--there was large outflows of gold to India averaging around 140 tons a year. But this trend was reversed in the following decade, when there was a net import of gold of around 31 tons per annum.

Since then, despite the imposition of ban on gold imports in 1947, net imports (practically all of it illegally smuggled) increased progressively to 80-90 tons per annum during 1950s and close to 150 tons per annum during 60s and early 70s.

After the sharp decline in the 1970s gold imports again surged in the 1980s and following the lifting of the ban and permitting of imports in 1992, the rate of imports increased sharply in 1990s.

There was a big spurt in gold consumption in India following economic liberalization of gold imports in 1992. Gold consumption remained around 400-425 tons in the next couple of years. Before resuming the rising trend, estimated consumption was more than thrice the level recorded in 1990 and nearly 70% higher than in 1992.

Till 1991 practically all these imports were obtained by smuggling. But with liberalization, the share of smuggled gold has progressively declined both in absolute terms (from an estimated 290 tons in 1994 to 94 tons in 1998), and even more so in relation to total consumption (from over 70 percent in 1990 to less than an 80 in 1998).

The decline in smuggled gold was the direct result of progressive realization of gold imports (subject to payment of 15% duty) and a considerable narrowing in the margin between international and domestic price of gold. This margin in 1998 was close to the import duty on gold. However the volume of smuggling (90-100 tons a year) remains quite large in India. A smuggler who successfully escapes the customs net stills stands to make substantial profits.

A major step in the development of gold markets in India was the authorization in July 1997 by the RBI to commercial banks to import gold for sale or loan to jewelers and exporters. Initially, seven banks were selected for this purpose on the basis of certain specified criteria like minimum capital adequacy, profitability, risk management expertise, previous experience in this area, etc. At present, 14 banks and institutions are active in the import of gold. They are:

MMTC Ltd

Handicraft And Handloom Export Corporation

State Trading Corporation Of India

The State Bank Of India

Allahabad Bank

Bank Of India

Canara Bank

Indian Overseas Bank

Bank Of Nova Scotia

HSBC

ABN-Amro Bank

Standard Chartered Bank

Corporation Bank

Dena Bank

The quantum of gold imported through these banks has been in the range of 500 tons per year.

Gold enters India through a number of different routes. The gold trade routes are complex but can be classified into two broad categories: Direct flow (official) and Indirect flow (unofficial flows).

Direct flows include shipments, which mainly come from the refining centers of Europe, South Africa and Australia. Imports through direct flows are done in three ways: 1. Special import licenses, 2. Non-resident Indians, 3. Authorized banks and institutions.

Import of gold through Special Import License (SIL) and NRI route has been negligible after gold import through banks was permitted. The liberalized gold policy has brought most of the unofficial sector trade to official sector. The elimination of large unofficial market in forex has improved the policy effectiveness. It may also be noted that the Indian consumer of gold has been spared of huge transaction costs amounting to thousands of crores of rupees on account of the existence of the unofficial sector in the past.

Indirect flows (unofficial) occurs place through two entry ports of Singapore, Sri Lanka and Dubai in the first instance.

Factors Influencing the Supply of Gold to India:

Following are the major factors influencing gold supply in India.

Supply of gold follows the demand for gold. Hence the demand for gold is one of the important variables determining supply for gold.

The differentials between domestic and international prices for gold acts as inducement for smuggling with the objective of earning large rupee income. Thus, this can be treated as one of the important factor influencing supply of gold.

Smuggling is operationally feasible only if the forex can be obtained outside the legal forex market which hawala market provides. Thus hawala premium can be considered another factor influencing supply of gold.
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COMMENTS (3)
DHIRENDRA SAKSENA
07 Mar 2012
WHAT ARE THE DISCOUNTS AVAILABLE AGAINST IMPORT OF GOLD,SOURCE OF SUPPLY OF GOLD/NAME OF EXPORTER??
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Jacksferove
27 Aug 2011
MY NAME IS JACKSFEROVE i am pour boy i want for smuggling job iam get for meny mor mony
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Papay sadhukhan
21 Jul 2011
i am interested with smuggling. please contact with me. i wait for your reply....... i read in class ba 2nd year.my e mail--- papaysadhukhan@yahoo .......
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