Gold import squeeze hits jewellers hard ahead of festive season

Finance Minister P. Chidambaram and his fellow wonks will be all smiles with plunging gold imports in the country, but the shortage of bullion ahead of the festival and wedding season could be a boomerang they had not accounted for.

Gold imports were just about 3.5 tonnes in August - about a tenth from year-ago period. This is against an average 40 tonnes of gold a month that the domestic jewellery business consumes, says C. Vinod Hayagriv, managing director at one of India's oldest jewelers, C. Krishniah Chetty & Sons in Bangalore.

Leading jewellery retailers are worried.

"There is a short supply of gold in the market, and we are managing hand-to-mouth," says Bhaskar Bhat, Managing Director at Titan Co. Ltd, which owns the Tanishq jewellery chain of more than 150 stores. "We are somehow managing, but I can say we have less of a problem compared to many others in the market."

"I think we are going to see a big shortage in about a fortnight's time as we get close to the festival season," says Harmesh Arora, spokesman at Bombay Bullion Association Ltd.

Festival season sales in India start typically around end-September just before the Durga Puja celebrations - beginning October 9 this year - and go on until after Diwali, falling on November 3 this year. Wedding season runs between October and early January.

What caused the sharp decline were a series of measures by the finance ministry and the Reserve Bank of India (RBI) to rein in gold imports, the second highest imported item in 2012-13 after crude oil and petroleum products.  One rule change had a condition imposed on jewellers or banks that they would have to export a fifth of their gold imports. The resultant confusion and absence of any clarification from the government side led to a sharp decline in imports.

In routine course, jewellers buy bullion from banks, which import and sell, but the export rule has crimped the supply from banks. "We are not able to import because we cannot pay upfront for gold, and take the exposure [to the dollar on exports]," says P.G. Jayakumar, CEO at Dhanlaxmi Bank.

Gold coin sales have almost come to an end after All India Gems & Jewellery Trade Federation, a grouping of jewellers, recently advised its members to suspend their sale.

"We are gradually closing down our gold coin business because we are not able to  import gold," says P.E. Mathai, CEO at Muthoot Precious Metals Corporation, citing the new regulations. "There is a shortage of gold in the market for those who follow ethical business practices."

Bullion Association's Arora says what has met part of the demand is people who bought gold at lower rates before selling back to jewellers taking advantage of the price rally. Twenty-four-karat gold is trading above Rs 31,000 for 10 grams. Part of the gold from Indian households is getting recycled easing the supply to some extent, but traders say this will taper after some time.

Jewellers, off the record, say bullion is available in the grey market at prices lower by Rs 250-300 per gram as they have been smuggled in but that is not an option for the large jewellers who source their gold only through legal channels.

According to data from industry body World Gold Council, which tracks gold imports by the calendar year, India imported 859.7 tonnes of gold in 2012. To be sure, gold imports in the past have been higher at 958.2 tonnes in 2010 and 969 tonnes in 2011. But what hurt the Indian economy in 2012 and first two quarters of calendar year 2013 was the double whammy of rising gold prices and an appreciating dollar.

India's current account deficit (CAD), or the difference in imports and exports net of remittances and transfers, stood at nearly $88 billion in 2012-13, or 4.8 per cent of gross domestic product, primarily because of surging gold imports by value. The government target for CAD, $78.2 billion in 2011-12, in 2013-14 is $70 billion.

Going by import numbers of August and September, the government may be on target to reduce gold imports, even if there isn't supporting evidence of demand tapering on the ground. In January-June of 2013, gold imports were 553.1 tonnes - averaging over 92 tonnes a month. In July and August, it fell sharply to an average of 23.75 tonnes a month. The trend of lower imports in August is expected to continue in September also, according to gold industry sources. They expect the government to ease rules in October if the CAD improves a little bit.

The World Gold Council predicts some stability in the days to come. "We hope to see the situation to ease during the festival season with the government issuing the necessary clarifications on gold imports," says P.R. Somasundaram its managing director, India.

RBI governor Raghuram Rajan’s report to be lynchpin of financial sector reforms

NEW DELHI: Next up on India's reforms agenda is the financial sector. After retail, aviation and fuel prices, the government is getting ready to roll out the long-overdue, next generation of measures aimed at freeing up the country's financial sector and a framework for this could be in place as early as next month.

The plan to kick off the process, stalled for many years, was discussed in the run-up to the appointment of Raghuram Rajan as Reserve Bank of India governor and has the highest political sanction. The reforms blueprint will lean heavily on the two high-profile reports already available with the government, one of them authored by Rajan himself.

"We will have a framework ready soon and will take it to the Financial Stability and Development Council (FSDC) for deliberation before the measures are rolled out," a senior finance ministry official told ET. 

Financial sector reforms took a back seat after the global meltdown in the belief that India's conservatism had saved it from the worst effects, which which wasn't the right lesson to draw from the experience, Rajan had said in his 2008 report on financial sector reforms, 'A Hundred Small Steps'.

The policy paralysis that gripped the government in the first three years of the UPA-2 administration (2009-12) also contributed to the lack of progress on changes in the sector even as the government swore on the need to improve financial inclusion.

P Chidambaram's return as the finance minister in August last year was followed by a series of measures to break the policy logjam — fuel price reforms, the opening up of multi-brand retail, the establishment of the Cabinet Committee on Investment. It's now the turn of the financial sector. "The idea is to pick out 10-12 recommendations that could be taken up," the official added.

Drawing up the blueprint for change shouldn't be too onerous as two committees have conducted an exhaustive study of what needs to be done.

The High-Powered Expert Committee (HPEC) on making Mumbai an international financial centre called in 2007 for "deregulating, liberalising and globalising, all parts of the Indian financial system at a much faster rate".

Rajan's 2008 report cited above spoke of the "need to deregulate certain areas of the financial sector" and "focus on creating necessary institutions, and closing important gaps in regulation".

The Reserve Bank has sought suggestions on the banking structure in India in response to a discussion paper released last month. That could yield more ideas for the reforms exercise.

The Rajan committee had suggested more small private banks, disinvestment in small, underperforming state-run banks, the freeing of branch licensing rules, and the greater participation of foreigners in Indian financial markets.

Rajan, reputed as one of the few who warned about trouble ahead of the 2008 financial crisis, has already set the ball rolling in a way with a flurry of announcements on the day he took over as the RBI governor — September 4. He also said that new bank licences could be issued in January. India had first raised the prospect of new banks in 2010. Financial sector reforms are badly needed, experts said.

"This is good news... financial sector reforms in India are long overdue," said Jahangir Aziz, senior Asia economist and India chief economist at JPMorgan Chase. The "past five years we did not touch anything for the fear of doing something unintended".

Aziz also cited the widespread belief in India that the country was ring-fenced in 2008 by the restrictions and controls it had in place and said there had been no empirical study of the cost that taxpayers had to bear.

India's interest rates shot up to among the highest in emerging market economies after the crisis, besides which RBI's foreign exchange losses have been substantial, he said. Even when it comes to financial inclusion, competition is needed to ensure that it happens, he said.

 

Rupee at four-week high; climbs 90 paise against dollar

MUMBAI: The rupee on Monday strengthened by 90 paise to trade at four-week high of 62.58 against the dollar at the Interbank Foreign Exchange market on increased capital inflows and dollar selling by exporters.

The rupee had settled at 63.48 against the dollar on Friday, up marginally by two paise over previous day's close.

Traders said apart from selling of the American currency by exporters and banks, a higher opening at the domestic equity market and dollar's weakness against other overseas currencies, after Larry Summers, the man tipped to be named Ben Bernanke's successor as Fed chairman, withdrew from the race, also supported the rupee. 
Meanwhile, the BSE benchmark sensex soared by 293.30 points, or 1.49%, to 20,026.06 in early trade today. 

Sensex climbs 293 points in early trade on Sebi steps

MUMBAI: The BSE benchmark sensex on Monday shot up by 293 points in opening trade, mainly on the back of a flurry of buying by funds and investors after market regulator Sebi allowed overseas entities to invest in government securities without any auction mechanism.

Amid a firming trend in the Asian region, the 30-share index gained 293.30 points, or 1.49%, to trade at 20,026.06, with banking, capital goods, PSUs and power sector stocks leading the rally. It had lost over 265 points in the previous two sessions.

The wide-based National Stock Exchange index Nifty rose by 81.95 points, or 1.40 per cent, to trade at 5,932.55. 

Brokers said sentiments turned buoyant after Securities and Exchange Board of India (Sebi) allowed FIIs to invest in government securities without any auction mechanism so as to boost foreign fund inflows into the capital markets.

They said rise in rupee also supported the upside in equities. The rupee gained 90 paise against dollar to 62.58 in early trade today.

In the Asian region, Hong Kong's Hang Seng index rose by 1.47% in the opening trade, while Japan's Nikkei would remain closed today.

The US Dow Jones Industrial Average ended 0.49% higher on Friday.

July industrial output surprises with 2.6 pct growth

India's industrial production jumped an unexpected 2.6 percent in July after contracting for two straight months, government data showed on Thursday, good news for Asia's third-largest economy as it tries to emerge from a deep slump.
Analysts polled by Reuters had expected output to shrink an annual 0.8 percent in July after a 2.2 percent contraction in June.
The manufacturing sector, which constitutes about 76 percent of industrial production, rose 3.0 percent from a year earlier, the statistics office said.
Capital goods production, a barometer for investments in the economy, rebounded by a robust 15.6 percent in July from a year earlier