NEW DELHI: India has clamped down on gold jewellery imports from Asean under the free trade agreement (FTA) it has with the 10-nation bloc, suspecting the influx of the yellow metal is from third countries taking advantage of a lower customs duties regime through this route.
Revenue authorities suspect that these imports are in violation of rules of origin specified under the FTA that insist on a 35 per cent value addition by an Asean member before a third-country product is exported to India. Importers now have to furnish a bank guarantee in lieu of the duty benefits they avail under the free trade pact until the country-of-origin certificate of the Asean nation is verified. Gold jewellery imports under the India-Asean FTA face 2 per cent import duty against 10 per cent through the normal trade channel, offering an attractive arbitrage opportunity. India signed the FTA in goods with Asean in 2009.
A bank guarantee acts as a deterrent since it cuts down the duty advantage offered by the FTA by raising the cost of imports and increasing working capital.
Besides, verification of the country of origin certificate by revenue authorities acts as a check on third-country imports. The government action follows an alert by the Directorate of Revenue Intelligence on rising gold jewellery imports allegedly manufactured in third countries but routed through Asean. Value addition of as much as 35 per cent would render gold jewellery, a high-value item having an internationally benchmarked price, completely uncompetitive in India, the official said.
India had suspended gold jewellery imports from Thailand two years back after concessional duty imports undermined the high duty imposed by the country to correct the external account imbalance. Authorities have unearthed imports of yellow metal from third countries such as Dubai through Asean countries such as Indonesia.
The Indian government has also written to the Indonesian authorities over these imports, said another government official. With gold prices falling globally and demand in the country expected to rise ahead of the upcoming festival season as traders stock up, the government is unwilling to take any chances.
Moreover, readymade jewellery imports at lower customs duty hurts the domestic manufacturing sector that employs millions. The government has identified manufacturing as a thrust area with its Make in India programme and flouting rules under trade pacts are seen denting this objective. The finance ministry has already asked the department of commerce to keep gold jewellery out of future trade pacts and remove it from existing ones when they come up for renegotiation.
ET View:
Lower Import Duty on Gold
The government is barking up the wrong tree. Differential tariffs in gold only encourage smuggling. However, India cannot violate the free trade pact by raising the import duty on gold from Asean nations to curb smuggling. The best solution is for the government to remove the duty differential - in other words, lower the import duty on gold. The government should also market alternative financial instruments persistently. It must quickly introduce socalled 'gold monetisation' to reduce gold imports and use the country's huge domestic stocks to meet fresh demand.
Source : economictimes.indiatimes.com