India has permitted banks in the country to import gold from the UAE at concessional duty in a significant policy tweak that is expected to provide a major boost to the local gold exporters.
The liberalised norms for gold imports from the UAE, one of the world’s leading gold trading hubs, come under the trailblazing UAE-India Comprehensive Economic Partnership Agreement (Cepa) that came into effect in 2022.
As per the new policy, both qualified jewellers and banks authorised by the Reserve Bank of India are permitted to avail of the 1.0 per cent duty advantage for gold imports within a specified annual quantity. “Indian importers can take 1.0 per cent duty advantage to import up to 140 tonnes of gold from the UAE in 2023-24. A recent notification issued by the revenue department on Friday specified eligibility criteria to avail the tariff rate quota,” an India government official said.
While banks were informed of the duty concession on Monday, qualified jewellers were notified by the International Financial Services Centres Authority through the India International Bullion Exchange last month.
The liberal initiative will facilitate gold trade between the two countries and benefit the Indian jewellery industry, according to Vipul Shah, chairman of the Gem and Jewellery Export Promotion Council of India. It will reduce transaction costs and enhance the ease of doing business, he said.
Bullion traders in the UAE said the move by the world’s fifth-largest gold importing country would be a major impetus to the thriving gold imports and exports sector.
KP Abdul Salam, vice-chairman of Malabar Gold and Diamonds, said: “The move, in line with the Cepa agreement between India and the UAE governments, is quite advantageous for both countries as it would help the UAE with a major fillip to its non-oil trade, whereas in India, it will help generate employment for a large number of artisans working in the jewellery industry.”
Sajith Kumar PK, group CEO and managing director of IBMC International Group, said that gold import through banks would strengthen the regulatory framework of Indian bullion exchanges and commodity exchanges for gold transactions. “The healthy consumption demand from the retail segment, government investments like issuing sovereign gold bonds through RBI, will be added advantages to Indian banks to keep their reserves and engage in more transactions in gold format. Bank Imports also support Indian rural gold business class and consumers.”
In 2022, gold imports to the UAE, the world’s eighth-largest gold importing country in 2022, were valued at approximately $15.5 billion, an increase of nearly $5 billion from the previous year. India ranked fifth, imported $37 billion worth of gold in 2022, accounting for 8.0 per cent of the global gold imports.
However, in fiscal 2022-23, gold shipments from the UAE nearly halved from the previous year to a two-decade low despite the concessional duty offered under the Cepa that came into force in May 2022.
In FY23, India imported only about 52.81 tonnes of gold from the UAE, 47 per cent lower than 99.86 tonnes imported during the previous year. It is also the lowest annual gold import from the UAE since FY2003, when it was 18 tonnes. In FY23, India’s total gold imports also dropped by 23 per cent to 677 tonnes from 878 tonnes in the previous year. During this period, Switzerland, India’s largest source of gold imports, saw its shipments fall by 39 per cent to 220 tonnes from 360 tonnes in the previous fiscal.
According to Colin Shah, a former vice-chairman of the Gem and Jewellery Export Promotion Council, the drop in gold imports from the UAE was due to lack of clarity around the TRQ (tariff rate quota). “Till last year, the modalities of import under TRQ were not clear. There was no clarity, no SOPs (standard operating procedures), and customs, and due to the lack of clarity for nominated agencies /importers, the benefits of the rebate were not seen. This (financial) year onwards, these (challenges) are clear,” Shah was quoted as saying by the India media. Following the current move, he expects higher growth in gold imports from the UAE during FY24.
As per the trade pact, the UAE offered India immediate zero duty market access for export of gold jewellery (the import duty was 5.0 per cent) in exchange for tariff rate quota for gold, which was fixed at 110 tonnes in 2022-23 and 140 tonnes in 2023-24. It would be gradually raised to 200 tonnes over five years. Effectively, Indian importers can import UAE gold by paying 14 per cent duty, instead of the prevalent rate of 15 per cent, a bullion trade expert said.
The Cepa also extends zero-duty access to 90 per cent of Indian products and 65 per cent of products from the UAE. Over 10 years, 97 per cent of Indian products will get zero-duty access to the UAE market, and 90 per cent of UAE products will have duty-free access to the Indian market under the agreement.
In the wake of the Cepa, the two-way goods trade between the UAE and India reached $84.84 billion in 2022-23. India’s exports to the UAE surged by 13 per cent year-on-year to $31.6 billion, while imports increased by 19 per cent to $53.23 billion.