New Delhi, July 16: The customs duty of 10 per cent on gold is likely to stay as officials fear a repeat of last year’s record rise in gold purchase, which pushed the rupee down to near 69 against the dollar.
Despite repeated pleas by gold merchants, finance ministry officials said they no longer felt a mild duty cut could be effected on imports after foreign trade data showed that gold imports had jumped 65 per cent on an annualised basis during June.
Earlier this year, the RBI eased the import norms by allowing select trading houses to procure the precious metal to boost export of processed jewellery. Only banks were allowed to import gold, previously.
The RBI relaxation ramped up gold import and with a rising oil import bill, the trade deficit jumped to $11.8 billion last month from $11.2 billion in May.
Earlier, the ministry had explored the possibility of cutting gold duty by 2-4 per cent based on pleas by the All-India Gems & Jewellery Association.
Officials said they had decided to wait out the June trade data before deciding on the issue and had consequently not announced anything in the annual budget.
“However, with imports ruling high and the trade deficit nudging up, I do not think we can take a risk by cutting duties,” said revenue department officials.
Duty changes are often notified after the debate on the budget. The commerce ministry had also taken up the case with the North Block, stating in a letter that “the commerce department is repeatedly receiving representations from stakeholders in the matter and our exports are suffering”.
Prime Minister Narendra Modi, too, had said any action on gold should take into account the interests of the public and traders, not just economics and policy, giving hope to the gold jewellers’ lobby.
Import duty on gold had 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 value of the rupee.
Besides the duty imposed by the finance ministry, the RBI had imposed a so-called 80-20 rule that required a fifth of all bullion imports to be re-exported.
The curbs on bullion import helped to control India’s appetite for the metal somewhat. Gold and silver imports declined 40 per cent to $33.4 billion in 2013-14 from $55.8 billion in the preceding year.
Gold and silver imports in November last year dipped by over 80 per cent to $1.05 billion from $5.4 billion in the same period a year ago, helping to narrow the trade deficit to $9.21 billion in November.
In fact, global prices slumped 28 per cent last year — the first drop in 13 years — partly because of India’s curbs.
For the fourth quarter ended March 31, 2014, India’s current account deficit (CAD) fell sharply to $1.2 billion or 0.2 per cent of its gross domestic product (GDP) from $18.1 billion or 3.6 per cent of GDP in the same period of 2012-13.
Gold imports during the quarter amounted to $5.3 billion, significantly lower than the $15.8 billion in the same quarter of the preceding year.
However, gold imports are again on the rise. “The surge is also because in the Indian market there is a premium of about Rs 900-1,000 on every 10 gram of gold at the retail levelů this was unheard of in the past and has pushed up retailer induced demand,” said Rajeev Babbar, a bullion market dealer.
Industry had estimated that imports by India, the world’s No. 2 bullion consumer after China, could double from current levels if restrictions are eased.