UAE exports of gold bullion to India has already hit the 120-tonne mark within months of the CEPA trade deal being struck. These shipments could easily have been even higher, but under the CEPA deal, for the first five years, the upper ceiling on UAE gold exports to India is set at 120 tonnes annually. After that, it goes up to 200 tonnes a year, Gulf News reported.
“Even without the upper ceiling, UAE gold exports to India have already cleared the 80 tonnes of 2021,” said S. Abdul Nazar, Director in the All India Gem and Jewellery Domestic Council, an industry grouping. “Equally important, these UAE shipments come with a 1 per cent lower import duty compared to all the other countries – and that’s because of CEPA (Comprehensive Economic Partnership Agreement).”
Save on dollar reserves
India is the world’s second biggest gold and jewellery consumer. The government had gone for the duty hike to reduce having to use dollar reserves to pay for all the tonnes of gold reaching the country each year. (It was also felt that higher duties would reduce Indians’ consumption of the metal.)
It was in mid-February that UAE and India signed the partnership deal, effectively bringing down import duties across categories. It also eased two-way investments into the economies as well as fast-tracked processes for businesses from one country to make an entry into the other.
On gold bullion imports, this meant a 1 per cent break for Indian jewellery firms. And it became more so after India suddenly hiked import duties on gold and precious metals to 15 per cent from 10 per cent earlier.
“CEPA deal thus provided all gold importers with that 1 per cent break, because everyone in the industry was taken by surprise when the duty hike to 15 was announced,” said Nazar. “Because until then, gold importers and jewellery retailers were actually expecting a duty cut.
A combination of high gold prices and the added cost brought on by the 15 per cent import duty meant gold and jewellery prices dropped in India over recent months. “There is a liquidity drop and that’s affected retail sales,” the official added. “Jewellers and importers don’t see the government cutting the duty from 15 per cent.
“In Kerala (one of the biggest consumers of gold), for instance, the reduced demand has resulted in less tax receipts for the state government this year. This is the same situation in most of the other states.”