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DIRECTORATE GENERAL OF FOREIGN TRADE (DGFT)

India tightened gold and silver import rules to curb duty evasion via UAE FTA loopholes, introducing HS codes and restricting imports to RBI-nominated banks, DGFT-approved entities, and IIBX jewellers. The DGFT, under the Ministry of Commerce, regulates trade, issues IECs, sets norms, and aligns policies with Budget 2025 reforms.

Description

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Picture Courtesy:  THE HINDU

Context:

Government modifies import rules to ensure consistency between customs duties and import policies for gold and silver products.

Why did the Government Change the Rules?

India is one of the world’s largest consumers of gold, with an annual demand of around 895 tonnes, accounting for 26% of global demand.

Gold and silver imports impact the country’s trade deficit and foreign exchange reserves. In 2023-24, gold and silver imports from the UAE increased by 210% to $10.7 billion, driven by duty concessions under the India-UAE Comprehensive Economic Partnership Agreement (CEPA).

Importers exploited loopholes, such as labeling gold as platinum alloys (which required only 1% platinum under World Customs Organization rules) to benefit from lower duties under the CEPA.

Key Components of the New Rules

Changes for Gold Imports

  • Earlier: Some forms of gold (unwrought, semi-processed, powdered) faced blanket restrictions.
  • Now: These can be imported only by authorized agencies like:
    • RBI-nominated banks (e.g., SBI, HDFC).
    • DGFT-approved entities.
    • Qualified jewellers linked to the India International Bullion Exchange (IIBX).
    • Traders with valid India-UAE Free Trade Agreement (FTA) quota.
  • Gold bars (previously freely importable) now require RBI approval.

Changes for Silver Imports

  • Earlier: Many silver products were freely importable.
  • Now: Similar restrictions as gold apply—imports allowed only through authorized channels to prevent misuse.

New Tracking Mechanisms

HS Codes: Unique codes introduced for semi-processed metals (e.g., gold/silver dore) to track imports and stop misclassification (e.g., labeling gold as platinum alloy to evade duties).

Why These Changes?

  • Close Duty Loopholes: Semi-processed metals were earlier used to bypass higher duties on refined gold/silver. New codes help customs detect such cases.
  • Align with Budget 2025: The rules match customs tariff reforms in the Union Budget, which simplified duty structures and capped tariffs to boost manufacturing.
  • Prevent FTA Misuse: The India-UAE FTA was exploited by traders falsely labeling gold as platinum alloy. New HS codes restrict such practices.

Impact on Stakeholders

  • Banks & Authorized Traders: Gain exclusive import rights, strengthening regulated supply chains.
  • Jewellers: Must source gold/silver through approved channels (e.g., IIBX), reducing grey market risks.
  • Government: Enhances revenue by curbing duty evasion and improves oversight of precious metal inflows.

Directorate General of Foreign Trade (DGFT)

It operates under the Ministry of Commerce and Industry, and drives the country’s export and import policies.

The headquarter is in New Delhi, and manages its work through 24 regional offices across India, with four key zonal offices in Delhi, Mumbai, Kolkata, and Chennai.

Before 1991, the DGFT was known as the Chief Controller of Imports & Exports (CCI&E). During that time, it focused on controlling trade. After India’s economic liberalization in 1991, it transformed into the DGFT, shifting its role to facilitating trade.  

Key Functions of DGFT

Formulates and Implements the Foreign Trade Policy (FTP) => The DGFT creates the FTP, with the latest one, FTP 2023 was launched in March 2023, by the Commerce Minister. The FTP aims to boost exports, create jobs, and earn foreign exchange by making trade easier.

Issues the Importer Exporter Code (IEC) => Every business importing or exporting goods in India needs a mandatory 10-digit Importer Exporter Code (IEC). The DGFT issues this unique code, which acts like a passport for international trade.  

Regulates Trade Across Borders => The DGFT controls the movement of goods across India’s borders based on agreements with other countries. It decides which items can be freely exported or imported and which need restrictions or special permissions. For example, it uses Schedule 2 of the export policy to list items that can be exported without restrictions.

Sets Input-Output Norms => The DGFT establishes standard input-output norms to ensure efficient trade. These norms define how much raw material (input) a business can use to produce a specific amount of exported goods (output).  

Promotes Regional Trade => The DGFT encourages trade with neighboring countries like Bangladesh, Nepal, and Sri Lanka. It works to build strong trade relationships, make it easier for Indian businesses to export to these regions.

Issues Licenses and Certificates => The DGFT grants licenses for importing and exporting specific goods, such as capital goods (valid for 24 months) and raw materials (valid for 18 months). It also issues Certificates of Origin (COO), which prove that exported goods were made in India. It manages the e-BRC platform, allowing banks to electronically confirm payments for exports.

Advises the Government => The DGFT advises the central government on trade policies and global economic trends. It studies international trade agreements, like those under the World Trade Organization (WTO), and helps India navigate issues like anti-dumping rules and trade disputes.

Must Read Articles: 

FOREIGN TRADE POLICY (FTP) 2023  

Source: 

THE HINDU 

PRACTICE QUESTION

Q. India has consistently faced a high trade deficit. Examine the reasons behind this trend and suggest measures to address it without compromising economic growth. 250 words

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