Regulations
RBI’s revised 20:80 gold import scheme and the confusion

RBI came out with the 20:80 gold import scheme notification with an intent to curb volume of gold import in the country and create a more regulated domain for gold trading in India, but it ended up creating confusion among all due to lack of clarity on various issues

The Reserve Bank of India (RBI) came out with a notification on 14 February 2014 revising the existing 20:80 gold import scheme applicable to all the scheduled commercial banks, which are authorised dealers in foreign exchange and all such agencies, which are nominated to import gold. In this write up we intend to show the new scheme after revision.
 

Existing 20:80 Gold import scheme:-

As per the existing scheme, the nominated agencies, allowed to import gold, were allowed to import only if one-fifth of the quantity of gold imported is used for export (however, supply to the SEZ units will not be qualified as supply to exporters) and the rest of the four-fifth is to be utilised for domestic use and is to be supplied to only those engaged in jewellery business or business of dealing in bullions upon upfront payment. During the second lot of import, the importer will be able to import such quantities, as that of the first lot, only if one-fifth of the quantity imported in the first lot has been supplied to the exporters. Again, the quantum of gold permitted to be imported in the third lot will be restricted to 5 times the quantum for which proof of export is submitted.
 

This scheme has been shown with the help of the following illustration.
 

Illustration I:

Lot I of Import – Quantity of gold imported = 100kgs
 

Quantity of gold to be supplied to the exporters (A) = 100kgs x 20% = 20kgs
 

Quantity of gold to be supplied for domestic use (B) = 100kgs x 80% = 80kgs
 

Lot II of Import – Quantity of gold to be imported = 100kgs*
 

*Such quantity to be permitted only if it is proved that (A) has been cleared.
 

Lot III of Import Permissible quantity of gold permissible for the purpose of import = 5 x Quantity of export for which proof has been submitted.

 

Revised 20:80 Gold import scheme:-

Under the revised scheme, the importer will be able to import gold in the third lot only to the extent of the lower of –
 

i) Five times the export for which proof has been submitted; or
 

ii) Quantity of gold permitted to a Nominated Agency in the first or second lot.
 

The revised scheme has been shown with the help of the illustrations in the following table.

 

Illustration II -

 

Lot I of Import –

Quantity of gold imported = 100kgs

Quantity of gold to be supplied to the exporters (A) =100kgs x 20% = 20kgs

Quantity of gold to be supplied for domestic use (B) = 100kgs x 80% = 80kgs

 

*Lot II of Import –

Quantity of gold to be imported = 100kgs

Quantity of gold to be supplied to the exporters (C) = 100kgs x 20% = 20kgs

Quantity of gold to be supplied for domestic use (D) = 100kgs x 80% = 80kgs

 

Lot III of Import –

Permissible quantity of gold permissible for the purpose of import = Lower of –

  1. 5 x Quantity of export for which proof has been submitted = 5 x 40 (A+C) = 200kgs
  2. Quantity of gold permitted to a Nominated Agency in the first or second lot = 100kgs

Therefore, the permissible limit of import under the Lot III will be 100kgs

 

*Assumption:

We assume that before importing the second lot, the requirement of (A) has been already fulfilled and consequently before importing the third lot the requirements of (C) has also been fulfilled.

Illustration III -

 

Lot I of Import –

Quantity of gold imported = 100kgs

Quantity of gold to be supplied to the exporters (A) =100kgs x 20% = 20kgs

Quantity of gold to be supplied for domestic use (B) = 100kgs x 80% = 80kgs

 

*Lot II of Import –

Quantity of gold to be imported = 80kgs

Quantity of gold to be supplied to the exporters (C) = 80kgs x 20% = 16kgs

Quantity of gold to be supplied for domestic use (D) = 80kgs x 80% = 64kgs

 

Lot III of Import –

Permissible quantity of gold permissible for the purpose of import = Lower of –

  1. 5 x Quantity of export for which proof has been submitted = 5 x 36 (A+C) = 180kgs
  2. Quantity of gold permitted to a nominated agency in the first or second lot = 100kgs or 80kgs

Permissible quantity for the purpose of import = Out of the two options, we should select the option (ii), however, nothing has been mentioned in the notification for situations where the quantity of import in the first lot differs from that of the second lot.

 

*Assumption:

We assume that before importing the second lot, the importer could fulfil only 80% of the requirement of (A) and the importer has been allowed to import after reducing the quantity proportionately.

Illustration IV -

 

Lot I of Import –

Quantity of gold imported = 100kgs

Quantity of gold to be supplied to the exporters (A) =100kgs x 20% = 20kgs

Quantity of gold to be supplied for domestic use (B) = 100kgs x 80% = 80kgs

 

*Lot II of Import –

Quantity of Gold to be imported = Nil

Quantity of Gold to be supplied to the exporters (C) = Nil

Quantity of Gold to be supplied for domestic use (D) = Nil

 

Lot III of Import –

Permissible quantity of gold permissible for the purpose of import = Lower of –

  1. 5 x Quantity of export for which proof has been submitted = 5 x 20 (A+C) = 100kgs
  2. Quantity of gold permitted to a Nominated Agency in the first or second lot = 100 kgs or 0kgs

Permissible quantity for the purpose of import = Out of the two options, we should select the option (ii), however, nothing has been mentioned in the notification for situations where the quantity of import in the first lot differs from that of the second lot.

 

*Assumption:

We assume that the importer fails to meet the requirements of (A), hence, he is not permitted to import further gold.

Reason for different assumptions in case of Illustrations III and IV-

 

We have taken different assumptions in case of the Illustrations III and IV because the nothing in the notification provides clarity as to what will be the consequence in case the importer fails to fulfil the requirements under (A) in both the cases.

 

Other provisions in the notification:-


Apart from the above mentioned change in the scheme, the notification lays down the following:
 

  • The imports made as part of the Advance Authorisation (AA) / Duty Free Import Authorisation (DFIA) scheme will be outside the purview of the 20:80 scheme. Such Imports will be accounted for separately and will not entitle the Nominated Agency/ Banks/Entities for any further import.
     
  • The Nominated Banks / Agencies / Entities may make available gold to the exporters (other than AA/DFIA holders) operating under the Replenishment Scheme. They can resort to import of gold for the purpose, if considered necessary. However, such import will be accounted for separately and will not entitle them for any further import.
     

Conclusion:-
 

In any economy, if the volume of import increases, provided the volume of export remains unchanged, the current account deficit increases as well. We know that India is one such country which has a very limited gold reserve and it mostly depends on imports, so it is important to control the volume of imports to keep a check on the current account deficit of the country. We understand that the RBI came out with this notification with an intent to curb the volume of gold import in the country and create a more regulated domain for gold trading in India, but it ended up creating confusion among all due to lack of clarity on various issues discussed earlier in this write up. Though the RBI’s attempt to do new things in order to stabilise the India economy is very commendable, but if it fails to come clear, then, we are afraid, none of its measures would work.
 

(Abhirup Ghosh works at Vinod Kothari & Company)

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COMMENTS

Dayananda Kamath k

3 years ago

the scheme has been introduced to help gold smugglers to finance during election as well as hawala settlements. gold for industry is restricted but individual imports by nri which is not monitored is allowed freely. even earlier third party imports allowec to continue for 5 years and even after getting reports from 89 branches who have allowed this illegal imports in violation of import export policy and rbi declaring such transactions are illigal are protected by not taking any action. as informed by rbi to tri quiry. now it is up to enforcement directorate to initiate first against rbi for failing in their duty and the respective banks which have hidden this facts even though brought to their notice by special report during audit. this is a gold gate to be investigated after coal gate. apto oor now not

CSR activities: Can we expand it in some new areas?

With corporates mandated to spend 2% of their net profit on CSR initiatives, can we expand use this into areas like foodgrain storage, adopting complete villages, helping railways in improving infrastructure etc., where it can make a huge impact?

Thanks to the initiative taken by some corporate giants in the past, and the leadership qualities shown by them, in the form of setting up educational institutions, hospitals and other forms of charitable activities, including housing colonies for staff, this social responsibility has taken deep roots in the country for decades. Charity has been in the Indian blood since time immemorial. The house of Tatas, Birlas and many others have been practising this social responsibility for decades now. It is growing by the day.

 

As per the new Companies Act, both mid and large companies will have to spend 2% of their three year annual average net profit on corporate social responsibility (CSR) activities. The government expects the corporate giants to take a significant step forward in spending part of their profits in CSR designated areas.

 

CSR activities have been broadly covered to include such responsible areas as education; gender equality; environment; national heritage; prime minister's relief fund; all expenses related to the benefit of armed forces veterans, war widows and their dependents. Establishment of educational institutions, which may include polytechnics and hostels for students will help strengthen our educational base further.

 

Particular reference and emphasis has also been indicated for empowering women, in setting up homes and hostels, age old homes, day care centres and other similar centres for the senior citizens are also envisaged.

 

It is believed that spending on training to promote rural and nationally recognised para Olympics and Olympic sports would also qualify for credit under the CSR rules.

 

Rural development projects, technology incubators and parks, which are located within the academic institutions and approved by the government may also qualify to be accounted for in the CSR obligations.

 

Similarly, national heritage sites, including those that require restoration will also be covered by CSR. In fact, the scope for doing such "public seva" is truly unlimited!

 

As this process will surely take time to be brought into operation, are there other areas that we can come up with for government to consider seriously to include under CSR? Yes, there are a few that comes to our mind, and many more that can be suggested by our readers of Moneylife. Some of these are:

 

a) let corporate chieftains choose (their shareholders, if you like) to build standardised foodgrains warehouses/ godowns in locations that need them, to be identified by the government;

 

b) let the corporations who build these warehouses/ godowns be given land on permanent lease either free or on nominal rent

 

c) let it be the corporate responsibility to ensure related main road or feeder roads to and from the warehouses

 

d) let the corporate houses select towns and villages where they should be given free land to build schools, hospitals and polytechnics

 

e) let the corporate houses be given land so that they can build housing colonies for their staff/ workers, including retirement homes with full service facilities

 

f) let the manufacturers of electrical appliances, right from simple electricity bulbs and fans, to invest in areas for power generation and distribution

 

g) let the corporate houses be allowed to build indoor and outdoor sports stadiums in towns/cities - to be identified by Sports Ministry- for development of sports

 

h) let corporate houses be given the opportunity to help the railways in laying tracks, building and improving existing stations, including expansion of available facilities for the travellers.

 

i) let corporate houses be actively associated in building irrigational canals and wind power and solar farms to generate more power to people.

 

All these and more will help CSR become a reality.

 

(AK Ramdas has worked with the Engineering Export Promotion Council of the ministry of commerce. He was also associated with various committees of the Council. His international career took him to places like Beirut, Kuwait and Dubai at a time when these were small trading outposts; and later to the US.)

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Final tariff regulations offer earnings relief for Power Grid Corporation of India, says Nomura

Nomura’s first cut calculations suggest that CERC’s final tariff regulations entail a potential 3%-4% dent (on the lower side for power sector) to its earnings forecast for Power Grid Corporation post FY14, says Nomura in a research note

 

The Central Electricity Regulatory Commission (CERC) issued the final tariff regulations for the period FY15-19 – these regulations form the basis of Power Grid’s earnings (regulated returns) from its core transmission business over the next five years. CERC had issued the FY15-19 draft tariff regulations in December 2013; subsequently, representations from various stakeholders were invited and a public hearing on the draft norms was held in January 2014.

 

According to the research note by Nomura, the final tariff regulations are conducive for Power Grid Corporation of India’s earnings outlook. Purely on benchmark operating norms, our first cut calculations suggest that CERC’s final tariff regulations entail a potential 3%-4% dent to its earnings forecast for Power Grid post FY14. In spite of a potential dent in earnings forecast, this should be regarded as a relief because other players in the power sector are likely to be performing worse on the same aspect.

 

The Nomura research note maintains a ‘BUY’ rating for the Power Grid share in the stock market.

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