India’s decision last week to scrap the so-called 80-20 rule on gold imports may have only a modest impact on unofficial bullion imports, or smuggling, says Metals Focus. The rule had required 20% of all imports to be re-exported as a finished product. The surprise announcement was apparently taking with the current account deficit “seemingly under control,” helped by weaker oil prices, and aimed at curtailing unofficial imports and “round tripping,” Metals Focus says. “Of these two flows, round tripping, inextricably linked to 80-20, should now weaken considerably,” the consultancy says. “However, as the 10% import duty remains in place, we expect to see only a modest impact on unofficial bullion imports.” Round tripping refers to the export of crudely made gold jewelry, in order to meet the 80-20 rule, with the product then melted and shipped back to India. The impact of no 80-20 rule is less clear-cut on unofficial imports, Metals Focus says. “It is worth remembering that a key reason why unofficial flows have surged is not the introduction of 80-20, but the increase in the bullion import duty, which stands at 10%,” Metals Focus says. “This explains why unofficial shipments had already surged well before the 80-20 restriction was introduced in August 2013.” An estimate of 100 metric tons of bullion imports in November appears to have been weighted toward the first half of the month, Metals Focus says. This may have been due to confusion about what to expect in the way of policy changes, since many had expected the import rules to have been tightened and thus were buying gold ahead of time.
