RBI Under Gold Attack

THE Reserve Bank of India is under attack from bullion traders over the recent circular imposing restrictions on gold imports. They see this development as an attempt to further consolidate the already well-entrenched position of a handful of designated Government agencies and commercial banks.

Stating that the restriction was discriminatory and against the Government's policy of trade liberalisation, the Bombay Bullion Association (BBA) has cautioned that the future of domestic exporters who relied heavily on 360 days letter of credit (LC) for survival was at stake.

On July 9, RBI advised commercial banks to open LCs for direct import of gold for a maximum period of 90 days (down from 360 days earlier) and that only nominated agencies, approved banks and EOUs/SEZ units in gems and jewellery sector could directly import gold.

The circular was categorical that LC for import of gold under the nominated agency scheme must be established on behalf of the nominated agencies themselves and under no circumstances should LC be issued on behalf of any other entity, even if a letter of authority issued by the nominated agency was furnished by these entities.

The new directive is seen by the bullion trade not only as contradictory to the Government policy, but also loaded in favour of multinational banks.

Accusing the RBI of ignoring the former Finance Minister, Mr Jaswant Singh's commitment in January this year to allow gold imports under open general license subject to RBI guidelines, bullion traders said import of no other commodity was subject to 90 days LC condition.

Allaying apprehensions of money laundering, Mr Suresh Hundia, BBA President, said there was no scope for any such practice as import of bullion was against LCs established in favour of reputed global suppliers and all transactions were through banks, besides the fact that money generated by the bullion trade was solely through sales in the domestic market.