Indian gold import law will most likely stay as is until next year

India’s gold consumption sharply declined because of the import restrictions placed on the precious yellow metal in 2013. Despite the slight increase of gold demand in the second quarter of 2014, the World Gold Council remains skeptical that the importation laws in the country will be curbed next year.

Investment site BullionVault reports that gold was the major contributor to the rise of India’s total imports of 8.3% in May. Despite having a strong growth in exports this year, the country’s trade deficit is still at $11.8 billion.

The 80:20 rule that was enforced on gold last year was done in order to counter India’s high trading deficit. The law states that 20% of all gold imports in the country have to be re-exported, and only recognized, state-run agencies and banks will be allowed to import gold.

Ever since the law was instated in 2013, the Reserve Bank of India has only allowed 5 more banks to import gold. Among the newly-allowed financial institutions include the HDFC Bank, IndusInd Bank, Kotak Mahindra Bank, Axis Bank, and Yes Bank.

India’s gold demand in 2014 is expected to reach 850 – 950 tons, which is down by 50 tons from earlier estimations. India’s strict import policy could remain as is for the coming year, since U.S. monetary laws and skyrocketing oil prices are variables that would prevent the government from doing any curbing.

“What’s the point in relaxing everything and be faced with a higher interest rate scenario,” said Somasundaram PR, Head of WGC India. “Given all that, I think (the policy) might extend into the first quarter of next year.”

All hope for easing law restrictions isn’t gone, however, since Narenda Modi had become India’s new prime minister. Modi showed interest in the easing of restrictions before he got elected, saying that the citizens and brokers’ interests should also be considered, not just the current status of the economy.

Lucas Gibbs hails from South England. He is a part-time writer and a budding entrepreneur. Lucas has been following the latest in investment and trading news and plans to venture into the local stock market.