New Delhi, Dec. 25: The government may consider reducing the import duty on gold in a calibrated manner as the current account deficit has been compressed drastically.
The current account deficit, or the gap between foreign exchange earnings and spending, has been fuelled partly by gold imports.
Top finance ministry officials said the government could look at a “step by step reduction in gold duty”, which has been raised to 10 per cent from 4 per cent a year ago after a record trade deficit of $191 billion along with other factors drove down the rupee.
The higher duty has helped to curb appetite for the yellow metal.
Gold and silver imports in November dipped over 80 per cent to $1.05 billion from $5.4 billion in the same period last year, helping to narrow the trade deficit to $9.21 billion in the month, the second lowest in the current fiscal. However, there are reports that gold smuggling has gone up even as imports have dropped.
Officials say a small cut in gold import duty may be on the cards next budget.
Gold imports fell to 85 tonnes from 223 tonnes in the September quarter last year. However, because of higher duties in India, premium on raw gold in the country rose to a record $160 per ounce earlier in December vis-a-vis London prices. This gave an incentive to unofficial channels to bring in the metal, say analysts.
A duty waiver on gold imported by jewellers for exports may be announced earlier than the budget.
The All India Gems and Jewellery Trade Federation has written to the finance and commerce ministers, seeking duty cuts on imported raw gold as it was affecting the export of jewellery.
The commerce ministry has taken up the case with the North Block.
In a letter to economic affairs secretary Arvind Mayaram, commerce secretary S.R. Rao pointed out that “the commerce department is repeatedly receiving representations from stakeholders in the matter and our exports are suffering”.
Even though the trade deficit dropped on the back of lower imports, export growth slipped to a five-month low of 5.86 per cent in November as shipments of oil products and gems and jewellery fell.
Gems and jewellery, which is a major consumer of imported gold, account for about 15 per cent of India’s exports.
In the first half of this financial year, gems and jewellery exports stood at $24 billion, which is an average of $4 billion a month. However, by November, the export of gems and jewellery came down to less than half a billion dollars.
Rao also pointed out that exporters should be allowed to sell their jewellery stock and then import more gold.
To check the rising current account deficit, the RBI had in August imposed curbs on the import of gold and laid down various pre-conditions for inward shipment of the precious metal.
An RBI circular in August had said all entities should ensure that at least one-fifth, or 20 per cent, of every lot of imported gold was exclusively made available for exports and the balance for domestic use.
Meanwhile, gold was hovering below $1,200 on Tuesday and looked likely to fall to its lowest in six months in thin year-end trade, with strong US spending data hurting the metal’s safe-haven appeal. Gold is down nearly 30 per cent for the year, and is headed for its biggest annual decline in 32 years.