Indian banks have resumed imports of gold and silver after a disruption lasting more than a month, following their decision to pay a 3% customs levy that had earlier forced lenders to halt shipments, according to trade and government sources.
The move is expected to increase India’s gold imports, potentially widening the country’s trade deficit and adding further pressure on the rupee, which has been among Asia’s weakest-performing currencies this year.
As cited in a Reuters report, the resumption could also support global gold and silver prices, as India remains the world’s second-largest gold consumer after China.
Local jewellers are also expected to benefit as inventories begin to improve after weeks of supply disruptions.
Banks resume shipments after IGST dispute
The disruption began at the start of the new financial year on April 1, when customs authorities started demanding that banks pay a 3% integrated goods and services tax (IGST) on imported gold and silver.
Banks, which account for the majority of India’s refined gold imports, had stopped shipments after the levy was imposed.
Under the IGST framework introduced in 2017, gold-importing banks were exempted from paying the 3% tax.
However, banks had waited for more than a month for the government to renew the annual exemption order.
“We paid a 3% integrated goods and services tax (IGST) at customs to clear gold and silver shipments,” the head of the bullion desk at a Mumbai-based private bank told Reuters.
“Banks waited for more than a month for the government to issue an order that annually exempts them from paying the 3% IGST. But as the government signalled it wanted to curb gold imports, banks gave up hope,” the executive added.
A government official confirmed that banks have started clearing shipments after paying the levy.
The official declined to be named as they were not authorised to speak to the media.
According to the official, banks have cleared around 9 metric tons of gold and 34 metric tons of silver so far in May after paying the IGST.
PM Modi urges citizens to avoid gold purchases
The restart in imports comes amid growing concerns about pressure on India’s balance of payments and the rupee.
Prime Minister Narendra Modi on Sunday urged citizens to avoid buying gold for a year in an effort to preserve the country’s foreign exchange reserves.
India relies heavily on imported gold, making bullion purchases a major contributor to the country’s import bill.
The increase in imports following the resumption of shipments could therefore complicate efforts to manage the trade deficit and stabilise the domestic currency.
Weak demand keeps prices under pressure
Despite improved supply conditions, domestic demand for gold remains subdued, according to market participants.
Chirag Thakkar, chief executive of bullion importer Amrapali Group Gujarat, said, as mentioned in Reuters that the arrival of fresh bank imports has improved supply availability, but buying interest remains weak.
As a result, gold has continued to trade at a discount in the local market.
Dealers in India offered discounts of up to $17 an ounce over official domestic prices this week, including the 6% import duty and 3% sales levy.
April imports hit near 30-year low
India’s gold imports in April are likely to have dropped to a near 30-year low of around 15 metric tons, according to the report.
The sharp decline followed the halt in shipments after customs authorities began enforcing the IGST payment requirement on bullion imports.
The resumption of imports in May is expected to gradually improve market supply conditions, although demand trends remain weak for now.
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