Indian Eases Strenuous Gold Import Rules

India – once the world’s largest gold consumer – has eased restrictions that had limited its gold imports and allowed China to overtake it in gold consumption. The so-called “80:20 rule” has been dropped, which required gold importers to reexport at least 20% of their imported gold. The rule was supposed to shrink a high current-account deficit, but it also led to a surge in illegal smuggling across the country.

In the immediate future this is positive news for gold investors – the second largest consumer of gold in the world will likely very soon begin to officially buy more gold. Indian gold imports have climbed the last few months as dealers prepared for even more stringent restrictions on gold imports. With this surprising change in law, there is a good chance those dealers will ramp up their buying efforts even more. Some fear that the government will impose quotas on importers, so dealers will probably race to stock up before further restrictions come.

We know the consumer demand in India remains robust, due to the preponderance of creative approaches to smuggling that make the news. From swallowing gold, to hiding it in dead cows, to simply carrying it under one’s clothes, Indians will go to any length to bring gold to their markets. This smuggling is likely to continue, as there is still a 10% tax on gold imports, providing ample incentive for illegal imports.

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