Gold import control relaxed?

RBI (and the Govt.) has managed yet again to continue to tie itself in knots over the policy issue when it comes to Gold import controls relaxation. I had written about futility of Gold control measures earlier when the controls were introduced. Now they are being relaxed. RBI has come up with this circular that relaxes the 20:80 rule to include star and premium trading houses (big gold exporters basically). The rule operates as follows:

Revised working example of the operations of 20/80 scheme for import of gold: 

1. A Nominated Bank / Agency / any other entity, ABC, imports say 100 kg of gold, which shall be routed through custom bonded warehouses only. If considered necessary, the lot can be procured through two invoices – one for exporters (i.e. 20%) and the other one for domestic users (80%).
2. Out of the above import of 100 kg, 20 kg gold held in the bonded warehouse can be got released, in part or full, to be made available to the exporters of gold against an undertaking to Customs Authorities as is the practice now.
3. The balance 80 kg can be sold / lent in part or full to domestic entities engaged in jewellery business / bullion dealers/ banks operating the Gold Deposit Scheme (GDS) and Gold Metal Loan (GML). The sale of imported gold will be against full upfront payment, except in the case of GML, where nominated banks can give GML  to domestic jewellery manufacturers to the extent of GML outstanding in their books as on March 31, 2013. In other words, no credit sale of gold in any form will be permitted for domestic use, except for GML. In case, the Nominated Bank itself is operating the Gold Deposit Scheme and extend Gold Metal Loans out of gold mobilized under GDS, the bank will be permitted to use, out of 80 kg, a portion for replenishing gold given as GML.
4. Next lot of import of 100 kg of gold by ABC shall be permitted by the Customs Authorities only after the proof of export (i.e. 20% of the imported lot) is submitted.
5. Import of gold in the third lot onwards will be lesser of the two:
i) Five times the export for which proof has been submitted; or
ii) Quantity of gold permitted to a Nominated Agency in the first or second lot.

The idea is, only those exporters who can export to the extent of 20% of imported gold should be allowed to sell the remaining 80% in the domestic market. Earlier, big exporters were kept out (premier and star trading houses were not allowed in this scheme). This new notification allows them to come in and operate. In effect, earlier, almost no one could import gold as there are hardly any significant small players who can manage to meet the conditions laid above. That lead to a significant fall in legal import of gold. 

I don't see any point in such cumbersome measures and procedures. Under this so called relaxed scheme, the Gold importer has to maintain multiple detailed documentation as required by customs, DGFT, RBI and such agencies and also has to manage his business.

Also, no one becomes a Gold exporter overnight and achieves the status of premier trading house (a turnover of Rs 7500 crore over 3 years is required to become a certified premier house). So this relaxation is blatantly in favor of existing major players. 

Finally, what's the whole idea of such complex policy making. If I was asked to make Gold import control policy, I would use the following logic:  (it's bad idea anyday to control imports, but then...)

1. I would first check if it helps to increase import duty. Ans: probably no, as gold demand is inelastic. So in effect, the domestic prices will shoot up without much change in demand. Also, it might lead to smuggling and hawala payments for smuggled gold. 
2. Next, Can I make some kind of import quota? Ans: Yes, seems workable, but the quota should not benefit private parties as it usually happens, like in the case of 20/80 principle currently being followed. 

3. Finally, the modus operandi: I will set a target monthly quota for gold imports (depending on CAD etc). Then set up or choose an existing public sector body such as MMTC to import the monthly quota of gold. Auction this gold in domestic market to highest bidders and pocket the premium as tax collected into Govt. account. The premium should ideally match the smuggling premium, which is basically the difference between domestic and international prices. 

Some more tweaks might be required but the idea can be worked on with the above 2 points. Smuggling and hawala will still continue but atleast in this case, the rules are simpler and Govt gets to earn some money out of selling the quota. It would also ease the documentation burden. 

If there's a better logic, due to which GoI/RBI is doing what it is doing, I am not aware.