Indian banks granted concessional duty on gold imports from UAE

In a strategic move, the Indian government has given a green light to banks, allowing them to import gold from the United Arab Emirates (UAE) at a discounted duty rate. This groundbreaking decision, made under the countries' Free Trade Agreement (FTA), is expected to have significant implications for the gold import landscape in India. 

The recent announcement signals a notable shift in the government's stance on gold imports. Indian banks are now permitted to bring in gold from the UAE at concessional duty rates, a privilege bestowed by the Comprehensive Economic Partnership Agreement. This move includes a specific annual quantity allocation and extends the benefit to both qualified jewellers and banks authorised by the Reserve Bank of India.

Tariff rate quota and annual limits

Under the trade pact, the UAE has extended immediate zero-duty market access for the export of gold jewellery from India. In return, India enjoys a tariff rate quota for gold imports, set at 110 tonnes in 2022-23 and increased to 140 tonnes in 2023-24, with a gradual rise to 200 tonnes over the next five years. This essentially translates to Indian importers enjoying a 1% duty advantage, reducing the duty from 15% to 14%.

Boosting domestic jewellery manufacturing

The liberalisation of norms for gold imports aligns with the government's broader strategy to enhance domestic jewellery manufacturing. Ajay Sahai, Director General of the Federation of Indian Export Organisations, sees this move as a pivotal step to make precious metals more accessible for value addition, thanks to the 1% concessional duty on gold imports.

What will be the impact on India's competitiveness?

Ashok Seth, Regional Chairman of the northern region at the Gem Jewellery Export Promotion Council, emphasised that this policy shift is a significant benefit of the free trade agreement. It enhances India's competitiveness in the sector, offering a favourable environment for growth and innovation. The agreement, signed on February 18, 2022, and effective from May 1, 2022, has already begun showcasing positive results.

Trade statistics and bilateral impact after this?

Post the free trade agreement, bilateral goods trade between India and the UAE reached US$84.84 billion in 2022-23. Exports from India to the UAE saw a notable year-on-year jump of 13%, amounting to US$31.6 billion, while imports increased by about 19%, totalling US$53.23 billion. Petroleum and petroleum products accounted for a significant portion, with approximately US$27 billion.

Challenges and slowdown in trade growth

While the initial impact of the trade agreement was substantial, the current financial year has witnessed a slowdown in trade growth. Factors such as the higher base effect and a significant decline in the rates of key commodities contributed to this deceleration. India's exports to the UAE fell by 0.78% at US$18.08 billion in April-October, with imports contracting over 21.34% at US$24.9 billion during the same period.

Nonetheless, the government's decision to allow banks to import gold from the UAE at concessional duty rates is a strategic move to stimulate domestic jewellery manufacturing. The broader impact on India's competitiveness in the global gold market and the potential for growth in bilateral trade showcases the multifaceted benefits of such policy initiatives.