A combination of unclear regulations and an increase in import duties is being pointed to as the cause of a marked decline in gold imports from the United Arab Emirates (UAE) to India. The past fiscal year, ending March 31, 2023, witnessed the import of only 52.81 tonnes of gold from the UAE – a significant drop of nearly 47% from the previous year’s figures, and a twenty-year record low.
This drop comes despite the free-trade pact signed between the two nations, which offered a tariff rate quota (TRQ) on the first 120 tonnes of gold imports in its inaugural year. The implementation of TRQ, however, was hindered by unclear procedures and guidelines, according to industry experts from the Gem and Jewellery Export Promotion Council (GJEPC).
Colin Shah, former vice chairman of the GJEPC, explained the predicament, “The modalities of import under TRQ were not clear last year. Absence of SOPs (standard operating procedures) and lack of clarity for nominated agencies and importers resulted in the benefits of the rebate not being realized.”
Furthermore, to curb the escalating current account deficit spurred by heightened gold imports, India raised the gold import duty from 10.75% to 15% in June 2022. This hike, experts suggest, may have inadvertently incentivized gold smuggling.
A loophole in the system that permitted the import of refined gold under the guise of platinum alloy (attracting a lower duty of 10.75%) only complicated matters. The government, however, responded swiftly by increasing the duty on platinum alloys to 15.4% in October 2022.
Despite these hurdles, there is optimism for the future. With TRQ procedures now clearer, Shah anticipates a surge in gold imports from the UAE in the 2023-24 financial year.
The India-UAE trade pact offers a 1% duty concession on India’s gold imports from the UAE, with an incrementally increasing quota for concessional gold from 120 tonnes in the first year. The pact also includes zero-duty access to a majority of trade goods from both countries.
Offering insights on the relationship between imports and exports, “One reason (for the fall in gold imports during FY 23) may have been due to the focus of the government to reduce imports. Secondly, much of our gold imports are exported,” said Arpita Mukherjee, professor at the Indian Council for Research on International Economic Relations (ICRIER). “So, (gold) imports will rise when exports will increase and vice versa.”
Despite the slump in gold imports from the UAE, stakeholders are optimistic that the clarity on TRQ regulations and the growing concessions under the India-UAE trade pact will pave the way for a resumption in robust gold trade between the two nations.
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