Millennium Post

Gold duty hike to add glitter to bourse

Raising the import duty on gold from 6 to 4 per cent is going to impact the economy in no small way and clearly the government has taken the right call in hiking the import duty by 50 per cent. The import duty hike has impacted the market price of the precious metal to a whopping Rs 31,362 per 10 gm, because of pricing strategy of large hoarders of gold in the market. This was 0.07 per cent hike on a single day, one of the biggest in recent years. And that is something of a surprise given that gold has been jumping prices often lately putting pressure on the government for more and more imports and yet straining its deficits. This was expected and the government expects that higher prices would necessarily bring down its import liability and also attend to the widening current account deficit that the government is facing due to higher and higher demand of this precious metal in the market.
Gold prices have been on a steady rise in the last few years and increasing demand was threatening to widen the current account deficit unless the government did something to profitise the increasing demand. Clearly the government wants to send a signal that only serious players who would invest in extended import duty would stay in business of the precious metal and those who are here to make quick money should be discouraged with higher import duties, especially when it is something as bourses-impacting as gold. 

Along with hiking import duty on pure gold the government has also more than doubled the import duty on gold ore bars and ores on Tuesday, to further ensure than it can arrest the slippery deficit of the current account. The government has increased the import duty on gold dore bars to 5 per cent from 2 per cent. Dore is an alloy of gold and silver used in refineries to produce pure gold and it accounts for about 100 tonnes of imports annually. The government was worried that higher import duty would lead importers to import dore bars rather than pure gold. So the hike in the import duty of the dore bars was expected on the heels of the hike of pure gold. India’s gold imports total about 800 tonnes a year.

One can hope that the desired result of arresting the government’s current account deficit will be achieved and the import hike will positively impact the economy, the treasury and the bourses.
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