Aug. 13: Gold prices surged by Rs 600 to Rs 29,965 per 10gm (24 carat) in Calcutta after the government today raised the import duty to 10 per cent. Silver and platinum, too, faced a similar increase.
This is the third time this year the government has raised import duties on gold and silver as it struggles to quell the rising demand for bullion and cap the current account deficit (CAD) at $70 billion, down from last year’s $88.2 billion.
CAD is the difference between inflows and outflows of foreign currency arising from trade and all forms of financial transactions. The rising CAD is one of the main reasons for the dramatic slide in the rupee’s value.
Analysts and jewellery traders were, however, sceptical about the impact the duty hikes would have on gold demand in India, the world’s largest gold importer.
“Demand is expected to remain steady, especially for jewellery with the festive season round the corner. The concern is that such a move will trigger gold smuggling via Bangladesh, Nepal, Pakistan and Sri Lanka,” said Bachraj Bamalwa, former chairman of the All India Gems and Jewellery Federation.
Sanjeev Bhatia, chief financial officer of P.C. Jeweller Ltd, said: “Import duties do not play a role in curbing demand.”
P.R. Somasundaram, managing director of the World Gold Council’s India operations, echoed the sentiment. “Demand will be met through unauthorised channels which won’t be good either for the economy or society.”
The import duties on gold and platinum were increased to 10 per cent from 8 per cent while the levy on silver was raised to 10 per cent from 6 per cent. Taxes on shipments of gold concentrates, ores and dore bars rose to 8 per cent from 6 per cent, while the duty on silver dore bars climbed to 7 per cent from 3 per cent.
Gold smugglers have been on the prowl once again, lured by the widening gap between international and Indian prices, or premium.
“The premium was $10 to $15 per ounce. This has now risen to $40. We now see this premium going up to around $65 over a period of time,” an analyst with Emkay Commotrade said.
In the first four months of this financial year, customs officials caught smuggled gold worth about Rs 84 crore, a tad shy of the Rs 99 crore worth of the metal captured in 2012-13. Officials estimate that for every kilogram of gold they impound about 10 to 15kg pass through.
Gold imports had a significant impact on the country’s trade deficit that stood at $184.9 billion last fiscal with the yellow metal contributing $59 billion.