12 pc of gold demand met by illegal supply
KATHMANDU, Nov 14:
The domestic bullion sector, which traders say involves investments of over Rs 30 billion, is one of the major contributors to the national economy. With the gold and silver market here growing by almost 10 percent a year, thanks to the increasing demand for jewelry, the sector apparently plays a crucial role in terms of creating employment opportunities and keeping the country´s trade deficit under control through exports of Nepali jewelery around the globe.
Domestic jewelers, moreover, say that the sector can contribute a still greater volume of revenue to the state, provided the government acknowledges future prospects and comes up with trader-friendly laws and policies.
The question of how the domestic bullion industry been sustaining itself touches upon the future prospects of this sector in Nepal. Available data shows that illegal trade in the yellow metal has a notable stake in the sector. The illegal trade has been contributing significantly to domestic demand.
According to data with the Nepal Police, they nabbed smugglers with more than 140 kg of illegally traded gold (more than 12,000 tola) in Fiscal Year (FY) 2013/14. Illegal smuggling has been a major source for gold traders, as such gold is marginally cheaper.
Mani Ratna Shakya, chairman of the Federation of Nepal Gold and Silver Dealers Association, admits that illegal gold is around Rs 400,000 cheaper per kg than that supplied by the banks.
Among the legal sources of gold, the first and foremost is the gold supplied by Nepal Rastra Bank (NRB) to different commercial banks, which in turn supply the traders. According to Nepal Bankers Association (NBA), NRB supplied 6,050 kg of gold to the market in 2013/14.
The other legal source of gold is the government provision that allows Nepalis returning from abroad to bring 50 grams of gold with them. According to traders, this fulfills 20 percent of the demand for gold in the market.
Officials of the dealers´ association said that over 9,000 kg of gold and gold jewelry were sold in the market in 2013/14. Around 1,800 kg of the gold was brought by returning Nepalis during that year.
Altogether 7,850 kg, including the 1,800 kg brought by the returnees, were supplied through legal channels. This means around 1,150 kg (98,592 tola) of illegal gold was traded in the market in 2013/14, contributing 12 percent to the supply of gold and silver jewelry.
Moreover, the point to be noted is domestic jewelers often claim that they have not been issued gold by the government as per the demand. However, traders time and again refrain from collecting gold from the banks, citing low demand.
Bankers said that they have around 388 kg of unsold gold as of now.
Jewelers, however, deny that illegal gold meets a large chunk of market demand. “Though the nominal demand in the market is met by such illegal gold, some portion of this is also supplied to the Indian market,” Shakya said.
Meanwhile, India recently tightened gold imports and smuggling to control the widening trade deficit.
Admitting that some jewelers prefer illegal gold over what is supplied by banks as it is marginally cheaper, Shakya said “There is a provision that bank should issue us gold allowing a profit margin of up to Rs 350 per tola. However, the margin differs between banks from Rs 200 to Rs 350 per tola.”
“If banks offer us gold as per this provision, traders will not be attracted towards illegal gold.”
Nepal Police data shows that a significant amount of illegal trading in gold takes place in the central development region, with Kathmandu Valley as the hub. Data also shows that out of 140 kg of illegal gold nabbed in 2013/14, 124 kg was nabbed in the central development region. Likewise, out of this 124 kg also, 64 kg was nabbed in the Valley.
Similarly, 15 kg, 170 gram, 685 gram and 332 gram of illegal gold were caught in the eastern, western, mid western and far-western regions respectively.
The illegal trade not only hampers the industry, it deprives the government of a huge amount of revenue. Officials of the Department of Customs said the government loses around Rs 500,000 on every kg of illegal gold.
Source: Republica
