Jewelry Exports From India to Jump on New Central Bank Rules

Gold jewelry exports from India, the world’s biggest consumer last year, are poised to surge as the central bank seeks to curtail domestic bullion use and boost shipments to defend a weakening currency, a trade group said.

Shipments may jump as much as 71 percent to 120 metric tons in the year that began on April 1 from 70 tons a year earlier, said Vipul Shah, chairman of the Gem & Jewellery Export Promotion Council. The Reserve Bank of India’s order this week to set aside 20 percent of imported gold in any form for exports will help reverse a drop in jewelry shipments, he said.

Exports slumped 59 percent to $1.66 billion in the April-June quarter from a year earlier after the government doubled a tax on gold imports and curbed financing, fueling a shortage of precious metal in the domestic market, Shah said. India is seeking to tackle a record current-account deficit, which weakened the rupee to an all-time low, by reducing bullion imports. The deficit is the biggest risk to the $1.9 trillion economy, according to the central bank.

“With this new policy taking effect, we are now looking at a positive growth,” Shah said. “The 20:80 ratio will curtail imports for domestic use and at the same time exporters will also get supply.”

Gold imports may tumble 63 percent to 175 tons in the six months through December from a year earlier, according to Bachhraj Bamalwa, a director at the All India Gems & Jewellery Trade Federation. Assured supplies to exporters may help boost sales of shippers including Rajesh Exports Ltd., Gitanjali Gems Ltd., Shree Ganesh Jewellery House (I) Ltd. and Tara Jewels Ltd.

Import Curbs

The central bank said importers may supply gold only to the jewelry business and dealers who sell to jewelers. Shippers have to retain 20 percent of the gold in bonded warehouses and will be allowed to make fresh purchases only after at least 75 percent of the quantity has been exported, the bank said. The country exported gold jewelry, coins and medallions worth $18.3 billion in 2012-2013, according to data from the export promotion council.

“The new measures would boost exports of jewelers, which shall offset some of the import burden of gold,” Kishore Narne, head of commodity and currency at Motilal Oswal Securities Ltd., said in a report on July 23. “This is one more addition to the plethora of measures announced recently on gold in order to control the trade deficit numbers.”

Rupee Record

The current-account deficit, the broadest measure of trade tracking goods, services and investment income, widened to $87.8 billion in the year ended March 31 from $78.2 billion in 2011-2012, according to official data. The rupee touched a record low of 61.2125 per dollar on July 8.

Gold consumption in India, which imports almost all the bullion it uses, was 864.2 tons last year, according to data from the World Gold Council. The country accounted for 20 percent of global demand in 2012, according to the council. Imports in June shrank to about 38 tons from 162 tons in May, according to the All India Gems & Jewellery Trade Federation.

Gold is heading for the first annual drop in 13 years after some investors lost faith in the metal as a store of value. Prices rebounded 11 percent to $1,314.80 an ounce from an almost three-year low last month as demand for jewelry and coins rose.

Exports of polished diamonds, gold jewelry, coins and bars from India may climb 8 percent to 10 percent this year, export council’s Shah said. Shipments fell 9 percent to $39 billion in 2012-2013, data from the council showed.

“Gradually, the U.S. market, which is our main export destination, is picking up,” said Shah. “The Middle East and the Far East markets are also looking up, while Europe remains slow because of the recession.”

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