Improved Gold price discovery may lead to even higher imports into India

Qualified Indian gold jewelers and bullion dealers are now authorized to buy gold bars and coins directly via imports from the India International Bullion Exchange (IIBX). At present, gold imports are allowed only through Reserve Bank of India nominated banks and India's Directorate General of Foreign Trade licensed entities such as the State Trading Corporation (STC) of India to import gold in the form of the more popular 100 gm and 1 Kg bars with 0.995 (67%) and 0.999 (33%) purity, for Indian traders or jewellery manufacturers on consignment basis. Gold officially shipped into India comes via air into 11 cities as well as a Free Trade and Warehousing Zone (FTWZ), located in the town of Satyavedu. Indian gold imports have continued to rise despite high import duties with official imports averaging 760 tonnes per year since the first hike in 2012. In 2016-2020, imports made up 86% of India’s gold supply while recycling accounted for 13% and mining accounted for just over 1%. Since the first duty hike in 2012, India has imported some 6,581 tonnes of gold - rising from $37 billion worth in 2018, 377 tonnes in 2020 reaching a record $55.7 billion in 2021 buying more than double 2020's tonnage, as a price drop favoured retail buyers and pent-up demand emerged for weddings that were delayed when the pandemic first hit.
The ownership of the imported gold vests with the overseas exporter until its agent in the country (e.g. authorized banks) sells it to a domestic buyer. The banks and other agencies get a fee from the exporter for handling and storage and also add a premium to the gold while transacting with the domestic buyers. The buyers pass this premium on to the value chain until it reaches the end customer, who has little knowledge of the gold’s price discovery with price quotes for the gold across the country being opaque. The premium charged was up to $1 an ounce over official domestic prices in January 2022 (inclusive of 10.75% import and 3% sales levies) as opposed to $5 discounts in December 2021, which were the largest in five months.