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To arrest rising gold imports, which could widen the current account deficit (CAD), the government today increased Customs duty on gold by two percentage points, to eight per cent. This was the second time in six months that the duty was raised.
A notification by the Central Board of Excise and Customs said the import duty on standard gold bars, coins and platinum had been increased from six to eight per cent. The import duty on gold ores and concentrates used to manufacture gold was raised to six per cent. Excise duty on imports of gold dore bars (raw gold) has been raised two per centage points to seven per cent. The excise duty is a per cent lower than the Customs duty to incentivise local refineries to import raw gold and refine it here.
In May, gold imports touched 162 tonnes. In terms of value, gold imports in April and May touched a staggering $15 billion.
Today’s move followed the Reserve Bank of India asking banks and nominated agencies not to import gold on a consignment basis for domestic use. It has also disallowed import of gold on credit.
The industry, however, voiced opposition against today’s move, saying this would increase smuggling of gold. “The duty hike in gold is not necessary, with restrictions already in place. If the price falls another five per cent, consumption would rise, irrespective of the duty hike,” said Sudheesh Nambinath, India analyst, GFMS Thomson-Reuters.
“For a few months, we are talking about the deficit created by the import of gold. However, how much revenue the government has got since January 2012 hasn’t been discussed. In January, Customs duty was two per cent; now, it is eight per cent... We, the gold industry, are paying so much revenue to the government… The actual figures can be calculated and checked. The truth would come out,” said Mohit Kamboj, president of the Bombay Bullion Association.
Industry officials said last year, about 100 tonnes of gold were smuggled into India and after today’s rise in import duty, it was expected this would rise at least 40 per cent this year.
Following news of the rise in import duty on gold bars, gold prices rose Rs 600/10 g to about Rs 27,700/10 g in MCX August gold futures.
In 2011-12, gold imports stood at 1,064 tonnes; in 2012-13, these amounted to 1,015 tonnes. Owing to various central bank measures, this financial year, gold imports are expected to fall to about 900 tonnes. In April, imports stood at 133 tonnes. The finance ministry estimates in May, 162 tonnes were imported.
Despite the sharp increase in imports, demand for gold has fallen after Akshaya Tritiya. According to industry estimates, total jewellery and investment demand in April stood at 120 tonnes; in May it fell to about 75 tonnes.
In 2012-13, gold accounted for 11 per cent of India’s imports. This led to the trade deficit widening to an unprecedented $190.4 billion. This may widen India’s CAD, which stood at a record 6.7 per cent of gross domestic product in the third quarter of 2012-13.
The Prime Minister's Economic Advisory Council expects gold imports to fall to $45 billion this financial year.
