MUMBAI: In a move to ease the pressure on the rupee and the current account deficit, the government increased the import duty on gold to 15% from 10.75%, inclusive of cess. The move could slow demand for the yellow metal, which figures among India’s top 3 imports, including crude oil and electronic goods.
“This (duty hike) has come like a bolt from the blue,” said Rajesh Mehta, executive chairman, Rajesh Exports. “It’s sure to impact demand amid runaway inflation, which anyway will curb non discretionary consumer spending.”
The reason for the hike in duty was to rein in the current account deficit , thereby reducing pressure on the rupee, which breached the 79 to the dollar mark on Thursday. The immediate effect of the duty hike was a 1.8% intraday rise in the spot rate to Rs 51,584 per 10 gm (ex GST) for 99.5% purity, as per Indian Bullion & Jewellers AssocIation (IBJA). Apart from duty , the GST levy on gold is 3%, taking the overall tax on the metal to 18%, the highest seen so far.
Suvankar Sen, MD & CEO, Senco Gold and Diamonds, expects jewellers to pass on the full extent of the hike in the next “month and a half or so .” “Anyway high inflation and slack season have tempered demand,” he added.
Demand is expected to pick up from September with the onset of the festive season, with monsoon typically slowing demand due to the sowing season. Aside of demand , trade veterans like Rajesh Exports’ Mehta expressed concerns of a rise in “illegal trade,” given a hike in the duty .
However, some tradesmen like Kumar Jain of UT Zaveri, in Mumbai’s famous Zaveri Bazaar, expect consumers to take the hike in their stride as gold buying sustains amid price rise and changes in duty.
