Gold import duty hike: How will it impact you?

Apart from import duty, it is to be noted that Indian gold is at a premium of USD 40 per ounce over the London cash price.

Zee Media Bureau/Ajeet kumar/Reema Sharma

In order to contain the widening Current Account Deficit (CAD), government this week hiked the import duty on gold and platinum from existing 8 percent to 10 percent.

Import duty on silver has also been increased from 6 percent to 10 percent.

The hike at this rate means a straight jump of over Rs 600 per 10 gram in gold prices. Let us see the impact of hike in import duty.

Consumers: The general consumer who is used to deal in gold will find the news as a dampener but won’t consider it a setback. There is already so much volatility in the prices of gold (something that keeps ranging between 25,000 and 31,000 per 10 grams) that a hike of over Rs 600 per ten grams will become passable. The disappointment will gradually phase out and the price change will not affect buying of gold.

Imports: There is very little hope that import of gold will be affected due to the hike in import duty. This is the third revision in the past eight months as government aims to curb the surging imports. Prior to the recent hike, government had hiked the import duty twice. However it totally failed to curb gold import as imports rose to 141 and 162 tonnes during April and May respectively. Going by the past trend (from 6 percent to 8 percent and now 10 percent), it should be noted here that there will be no difference in the import of gold this time around. Things will normalise after an initial panicky phase.

Black-marketing/Smuggling: The hike in import duty could further fuel malicious practices —smuggling and black-marketing. At the current price (Rs 31,000 per 10 grams as of today); the import duty will be over Rs 3 lakh per kg. Apart from import duty, it is to be noted that Indian gold is at a premium of USD 40 per ounce or around rupees 1000 per ten gram over the London cash price. Apart from premium and import duty, depreciation of rupee will also make gold more costly as compared to international prices. The recent hike in customs duty may see increased attempts of smuggling of the yellow metal. The hike may also trigger gold black-marketing rush. Sale of unaccounted jewellery is also one of the apprehensions that cannot be ruled out.

India’s Fiscal health: The government decision to hike import duty is aimed at containing the ballooning fiscal deficit which is directly hurting the domestic currency. The government expects to rake up Rs 4,830 crore following the latest duty hike.