NEW DELHI: India, the world’s second-biggest user of gold, eased regulations on imports to remove distortions in shipments and curb smuggling.

Rules requiring importers to sell 20 per cent of their shipments to jewellers for re-export as jewellery were withdrawn effective immediately, the Reserve Bank of India said Friday.

Loosening restrictions on supplies entering the country will improve stocks for jewellers, lower procurement costs and help contain illegal trade in the metal. Gold imports in India, which accounted for 25pc of the total global demand, plunged last year when the government imposed curbs to narrow a record current-account deficit and stop a slump in the rupee.

“This is really good news for the industry as it was creating chaos for importers, traders, and jewellers,” Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation, said by phone from Kolkata. “We had represented to the ministry that the 20:80 rule was not helping the industry or the government. It was only increasing smuggling.”

Concerns about the current-account deficit remain and the industry worries that the government may try to control gold imports in a different way, he said.

The government increased import taxes three times in calendar 2013 to 10pc and levied the 20:80 rule. After the curbs cut imports and narrowed the current-account deficit to about $32.4 billion in 2013-14, compared with a record $87.8 billion the year before, the government on May 21 eased controls, allowing more trading houses to bring in the metal.

Imports in October jumped to about 150 metric tonnes, the highest in the fiscal year started April 1, people with knowledge of the matter said on Nov. 13. India imported about 640 tonnes of gold in the fiscal year that ended March 31, the people said.

Overseas purchases in the April 1 to Nov 15 period surged to 710 tonnes, a finance ministry official who ask not to be identified in line with departmental policy said Friday.

Because of the May 21 rule changes, only six institutions were benefiting from the 20:80 rules, which was resulting in higher margins for them and was also encouraging smuggling, the finance ministry official said in New Delhi. Fake gold jewelry exports were occurring and that had created trade distortions, he said.

Illegal inflows into India may be about 200 tonnes this year, the World Gold Council said on Nov. 13. Gold is bought during festivals in India and for weddings as part of the bridal trousseau. The festival season runs from late August to October and is followed by the wedding season.

Gold for immediate delivery in London dropped 1 percent to $1,180.53/oz Friday. Futures on the Multi Commodity Exchange of India fell 8.4pc this year to 26,029 rupees per 10 grams.

By arrangement with Washington Post-Bloomberg News Service

Published in Dawn, November 30th, 2014