India has raised basic import duty on gold to 12.5 per cent from 7.5 per cent, according to a government notice dated June 30. This step has been taken to reduce influx of gold into the world’s second-largest consumer of the precious metal, after India’s ballooning trade deficit pushed the Rupee to a record low. This is a reversal of last year’s Union Budget proposals, where Finance Minister Nirmala Sitharaman had announced cut in customs duty on gold to 7.5% from 12.5%. That time total levy on gold was at 10.75%, including cess, social welfare surcharge and GST.
Now with 5 per cent increase in import duty, the total levy on gold would stand at 15.75 per cent. India fufills most of its gold demand through imports, which were putting pressure on the rupee, which hit a record low earlier this week. Analysts say that this move will make gold more expensive at domestic levels and consumers will have to pay higher prices. “The government has taken this step to curb the import and maintain balance in import-export basket,” Anuj Gupta, Vice President, IIFL Securities told FinancialExpress.com.
Patel added that the move by the government is to compensate for falling income from petroleum taxes and also discourage gold import which increases US dollar demand ultimately weakening Indian rupee. “India heavily imports crude and gold which saps foreign reserves and the government is trying to encourage consumers to invest in gold bonds, ETFs instead of physical gold,” he added.
Indians consider gold to be auspicious and a store of value, and the country relies entirely on imports to meet demand. There has been a sudden surge in imports of gold. In the month of May, a total of 107 tonne of gold was imported and in June also the imports have been significant. The surge in gold imports is putting pressure on the current account deficit, the finance ministry said.
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