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By Sohrab Darabshaw

India used to be the No. 1 buyer of gold in the world before the levy of the import tax, shipping in about 70 tons a month. After oil, gold was the nation's biggest import, adding to the current account deficit, which was groaning under a weak rupee-dollar rate.

In January, jewelry exports had gone down by as much as 50 percent, but in February, there was a visible improvement in this. Bullion analysts and the GJEPC feel this trend would only gain in the next few months, especially because of more banks now being allowed to import gold.

A few days ago, the Reserve Bank of India (RBI) had permitted five domestic private sector banks to import gold.

According to a report in The Economic Times, the move is seen as a precursor to easing restrictions on inward shipments of the metal. The RBI had allowed Axis Bank, Kotak Mahindra and IndusInd Bank, among others from the private sector, to import gold. This, said industry officials, was a "significant step" toward the easing of tough curbs on the metal.

Lately, as reported by MetalMiner, the smuggling of gold into the country had gone up considerably due to the high demand of the yellow metal despite import restrictions. Under what is now popularly called the 80:20 scheme, introduced in August last year, agencies could import gold on the condition that 20 percent of the shipment would be exported.

Only six banks, almost all public-owned, and three financial institutions were allowed to import gold under the 80:20 scheme.

After it allowed more banks to import recently, RBI Deputy Governor K. C. Chakrabarty was quoted by The Economic Times as saying more players being allowed to get into gold imports would ultimately lower the cost and help the country's external balances. The move is also expected to bring down premiums for the metal in one of the biggest markets in the world. Premiums had hit a record of US $160 an ounce in December last year.

Chakrabarty's logic was that if increased competition existed, gold would be imported at an even lower cost, which would then translate into a reduction in India's current account deficit.

The move to allow more banks to import gold may raise shipments to about 40 tons per month from more than 20 tons in February.