Easing some restrictions on inward shipments of gold, the Reserve Bank of India (RBI) has allowed more banks, including Axis Bank and Kotak Mahindra Bank, to import gold under the 80/20 scheme. Till now, only six banks and three financial institutions were allowed by the central bank to import gold under the 80/20 scheme.
Gold is the second largest import item for India after crude oil and is mainly utilised to meet the demand of jewellery industry. The government had taken various measures like high customs duty of 10% and 80/20 rule to curb gold shipments to check country’s widening current account deficit (CAD). Under the 80/20 scheme, which was introduced in August last year, nominated agencies could import gold on condition that 20 percent of the shipment would be exported and the remainder would be kept for domestic use.
Meanwhile, the government’s measures to contain gold imports have started yielding results as imports of gold and silver declined by 70% to $1.6 billion during first eleven months of current fiscal from a year earlier. India’s gold import is likely to come down to around 550 tonnes in FY13 from 845 tonnes in FY13 due to these restrictions. Contracting India’s gold imports also helped to contain the current account deficit (CAD) to $31.1 billion (2.3% of GDP) during the April-December FY14 period as compared to $69.8 billion (5.2% of GDP) reported in the same period of previous fiscal year. The CAD is expected to narrow to around $50 billion during the current financial year.
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