Mumbai, Nov. 28: The Reserve Bank today eased the restrictions on gold imports by scrapping the 80:20 scheme, which stipulated that at least 20 per cent of the imported metal should be exported.
The move is expected to bring down the price of the precious metal.
The 80:20 scheme was put in place in August 2013 to curb gold imports, which was considered a major reason behind the widening current account deficit (CAD).
The surprise move comes at a time the industry were expecting more curbs on the import of gold, which is seen as an unproductive asset taking household savings away from the financial markets.
"It has been decided by the Government of India to withdraw the 20:80 scheme and restrictions placed on import of gold. Accordingly, all instructions issued about the scheme from time to time... stand withdrawn with immediate effect," the RBI said in a notification.
The Centre did not explain the reason behind the withdrawal of the scheme. However, it is felt that the scheme led to several distortions and did not have the necessary impact.
Market sources said the scheme had led to a huge rise in the smuggling of the yellow metal, while there had been cases of traders misusing the scheme to export fake gold jewellery.
"We believe the move will do away with the distortions and calm the market which was anticipating some curbs to restrict gold imports" an official said, adding this will help to reduce imports.
Sources said the scheme was initially seen as "working" as imports had slowed, but the shipments surged following the previous UPA government's move to permit six private trading firms to to avail themselves of the scheme.
Initially, under the scheme, only state-owned companies and banks were permitted to import.The six private firms accounted for 40 per cent of the total gold imports in April-September.
Gold imports jumped 280 per cent to $4.17 billion in October, trade data showed.
India imported 95,673 kg in September, the highest in the first six months of this fiscal.
According to market circles, the scrapping of the scheme can lead to the share prices of jewellery companies rising once trading resumes on Monday. They also do not rule out the possibility of fresh restrictions as the demand is expected to remain strong because of the wedding season.
Rising gold imports have pushed CAD in April-June to 1.7 per cent of GDP from 0.2 per cent in the previous quarter.
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