Indian banks resume bullion imports after month-long halt over 3% levy, sources say

MUMBAI: Indian banks have resumed gold and silver imports after a hiatus that stretched for more than a month by agreeing to pay a 3% customs levy that earlier prompted lenders to halt shipments, trade and government sources told Reuters.

The resumption is expected to boost the country’s gold imports, widen the trade deficit and put more pressure on the rupee, which is among Asia’s worst-performing currencies this year.

Worried about mounting pressure on India’s balance of payments and the rupee, Prime Minister Narendra Modi on Sunday urged people to avoid buying gold for a year to help preserve the country’s foreign exchange reserves.

Stronger demand from India, the world’s second-largest gold buyer after China, could also support global gold and silver prices and help local jewellers replenish their inventories.

“We paid a 3% integrated goods and services tax (IGST) at customs to clear gold and silver shipments,” said the head of the bullion desk at a Mumbai-based private bank.

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“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.”

Banks, which import most of India’s refined gold, halted shipments at the start of the new financial year on April 1 after customs authorities began demanding IGST on the metal. When India adopted the IGST regime in 2017, gold-importing banks were exempted from paying the 3% levy.

Banks have been clearing gold and silver shipments from customs in recent days, a government official said, declining to be named as he was not authorised to speak to the media. The trade sources were also not allowed to speak publicly.

Banks have cleared about 9 metric tons of gold and 34 metric tons of silver so far in May after paying the IGST, the official said.

Supply has improved due to bank imports, but demand remains weak, leaving gold trading at a discount, said Chirag Thakkar, chief executive of bullion importer Amrapali Group Gujarat.

Dealers in India offered discounts of up to $17 an ounce over official domestic prices this week, inclusive of 6% import and 3% sales levies.

India’s gold imports in April are likely to have fallen to a near 30-year low of about 15 metric tons, as banks halted shipments after customs authorities began demanding the IGST.