Gold prices continue to climb on the world market. The latest quotation is that of $ 509 per ounce. It is said that the upward movement will continue steadily by 15 percent a year for another two years and a doubling of price to $ 1000 per ounce in the next five years is possible.

One of the reasons behind the rise in gold is that of demand growth in India by at least 15 percent every year following the boom in the economy as estimated by an RBI official in a recent commissioned paper. The volatility of currencies and commodities is another factor which is pushing investors to the safety of gold hoards, and rising price has only accelerated the flight to the yellow metal.

The Reserve Bank of India is, however, not taking a proactive position in the gold boom. As the official custodian of gold and silver, it may take a defensive position on the lines of 1979 when gold prices pierced the ceiling. The bank shut the market down to save gold stocks in the country and suspended trade in gold sending jewellery into a tail spin. It took a long time for the industry to regain lost markets. In 1991, the Central Bank succumbed to pressure from the Commerce Ministry to reward exporters by way of gold premium. Gold imports were freely allowed under the SIL import licence issued to incentivise forex earnings. Once SIL was shown the door following the adoption of full market based exchange rates, RBI let select banks and MMTC type public sector companies monopolise gold import. The benefit to the economy by the canalizing action is not known but the agents are making bumper profits on the monopoly rent. The customs too got a share of booty by way of an import duty which is currently at Rs 100 per ten grams.

Given the boom in gold, the RBI could consider taking a bold step and implement the DGFT policy of allowing free import of non monetary gold announced on 24 January 2004. Given the high price in the world market, there is not much point in continuing with the nuisance of the  Rs. 100 per 10 gms customs duty. The export of non monetary gold could also be freed on the lines of value added gold. In any case, the non tariff and tariff barriers on gold have resulted in the considerable smuggling from Middle East to meet domestic demand as well as liquidity to finance informal trade in the South Asian sub-continent.

Opening gold import and export will be major steps towards capital account convertibility which in turn will bring in much needed funds from the world market. It will also push up the production and trade of gold, diamond and other jewellery items bringing in  employment and income. Gold stocks will find play in the market and release funds for investment which are otherwise sleeping in hoards. Historically, gold investments have always gained value in India due to rupee depreciation against world currencies but this scenario may change in future.

The best way to do this review exercise is to use the knowledge and information resources in the trade itself and get a good economist to put the views together. The matter then should be discussed at the higher levels and the consequent policy stance duly implemented by the RBI.

Anti-dumping News

 In a review of anti dumping duties, the Department of Commerce found that punishing cold rolled stainless steel from EU and Canada was not justified since the injury margins were negative. The impost on two countries was dropped with effect from 25 November. The duty collected in the interim period is with the treasury. The government should transfer the wrongly collected duty to the consumer welfare fund on grounds of “undue enrichment”, a much used and abused part of customs and excise law.

Following the review, Japan and USA, the other two victims of the anti dumping duty too get an apparently reduced sentence US$ 305 per tonne (Japan) and US$445.69 per tonne (USA) compared to the minimum landed value going up to $2431 per tonne in the previous dispensation. However, the minimum value was arrived during the days of low price when stainless steel was in the range of $1200 per tonne. The current price is over $2500 per tonne in the world market, recent imports could escape the dumping duty since the customs paid value per tonne was above the minimum specified in the notification. The shift to specific duty regime in the review from minimum landed value has resulted in imposition of a fresh duty of 12 to 18 percent on imports originating from US and Japan. The review was intended to lower duty but it has actually resulted in more duty and discrimination. Non tariff barriers become monsters of gargantuan size in no time. 

NBR from EU, Brazil and Mexico

 Acrylonitrile Butadiene Rubber, a key ingredient in the petroleum industry in hoses and belting will be subject to a specific duty ranging from $ 195 to $ 304 per tonne from 29 November, 2005. This is a hike of about 50 percent compared to the level in the preliminary duty dispensation. Fortunately, the plastics and auto industry, the other major users of NBR, are not on the hit list with the exclusion of powdered and carboxylated forms in the notification.

Apar Industries, the sole producer of the item and a master at moving anti dumping petitions was the petitioner in the case. The protection cover to the company will extend to a period of five years at considerable cost to down stream users and exporters. (It is time the government took a view on cases of single manufacturer industries to build in some competition by a sensitive design of the anti dumping instrument).

Metal scrap

 Another para was added in the list of barriers on import of metal scrap. This time the DGFT has pointed the finger at Al Hodaidah, the largest fishing port on the Red Sea near Aden in Yemen for compulsory pre shredding at the load port. Bandar Abbas in Iran was the first in the list. The addition of the Yemen port is difficult to understand since there are no hostilities of the Iraq kind in the region. Yemen has a border only with Saudi Arabia. Perhaps the conflict in Somalia is yielding scrap containing live shells which are finding their way to the port and there is no inspection agency in the port.

In the meanwhile, the DGFT banned seven inspection agencies on 21 November whose certified consignments were found to contain sheets.  Scrap metal from the Middle East is $30 - $40 less per ton lower compared to scrap metal from Europe. The inspection agencies are not ready to give certificates since there is no such thing like a 100 percent inspection followed by a 100 percent sealing to prevent cargo substitution. A huge explosion occurred in India at a recycling facility that was processing scrap from Iran resulting in 10 deaths.