Nepal’s gold imports have shot up dramatically with shipments in the first one and a half months of the current fiscal year amounting to almost half of the imports in the whole of fiscal 2014-15.

According to the Nepal Bankers’ Association (NBA), the country’s gold import stood at 850kg in the first one and a half months compared to 1,702 kg in the whole of last year. Only banks are permitted to import the yellow metal.

There has been a massive rise in demand for gold this year after the government slashed import duty by Rs1,000 per 10 gm, said bankers.

In the last fiscal year, banks had been left with unsold stocks for a few months as bullion traders preferred to source their requirements from informal channels.

“Presently, traders have been purchasing almost all the gold that banks have been importing,” said NBA President Upendra Paudel. “They don’t have any unsold stocks currently.”

According to him, banks had a hard time selling their gold last year as traders

could get contraband gold at a cheaper rate. For the last few years, only banks have been allowed to import gold on a large scale after the country faced a balance of payments crisis in 2009.

Nepal Rasta Bank (NRB) has permitted 22 commercial banks to import the yellow metal. These banks import gold from Malaysia, Dubai, Hong Kong and Switzerland. Each bank can import up to 50 kg of gold at a time.  

According to traders, a fall in prices is responsible for the surge in demand for gold. Tej Ratna Shakya, former president of the Federation of Nepal Gold and Silver Dealers’ Association (Fenegosida), said demand had swelled to 50 kg daily last month when the price dropped sharply. “Daily demand stands at 30-35 kg.”

Last month, the central bank upped the import quota to 20 kg daily from 15 kg in view of the upcoming wedding and festive seasons when demand for gold to make jewellery rises.

Authorities believe that there has been a fall in gold smuggling in recent days resulting in increased demand for gold from commercial banks. In the initial months of the last fiscal year, remittance inflow had plunged, leading the authorities to suspect that the money was being used to buy gold intended to be smuggled into the country.   

Subsequently, the police intensified their surveillance which contributed to bringing down smuggling, according to NRB officials.

“The closure of the Tatopani and Rasuwagadhi routes following the earthquake also led to a drop in smuggling as illegal traders largely used the northern routes,” said Bhisma Raj Dhungana, head of the Foreign Exchange Department at the central bank.

According to him, traders have been purchasing almost all the gold imported by commercial banks at present. “Police reports also show that there has been a fall in smuggling which used to be more frequent last year.”

NRB statistics also reveal that the country imported an average of 2.08 kg of gold monthly during the five months of the wedding season last year. As per traders, smuggled gold cost Rs600 per tola less. Shakya of Fenegosida said that gold smuggling dropped after the government reduced the customs duty this fiscal year.  “With the new provision, the customs duty has come down to almost the same level as in India, eliminating the incentive to smuggled gold to the southern neighbour,” said Shakya.