Govt hikes gold import duty from 10% to 12.5%
New Delhi: The government Friday proposed to increase import duty on precious metals, including gold, silver and platinum, a move which will make them expensive in the domestic market.
Finance Minister Nirmala Sitharaman said in her Budget speech that "it is proposed to increase custom duty on gold and other precious metals from 10 per cent to 12.5 per cent". The similar hike was proposed for silver (including silver plated with gold and platinum); base metal clad with silver; platinum; and waste and scrap or precious metals. Currently, these metals also attract 10 per cent import duty.
Now with hike in the duty, jewellery or other items made out of these precious metals will become expensive.
The decision to raise import duty on gold came at a time when the domestic jewellery industry was demanding a cut in the same. The commerce ministry, too, had in past recommended for reduction in the duty. The country's gold imports dipped about 3 per cent in value terms to $32.8 billion during 2018-19. Dip in the imports expected to keep a lid on the current account deficit.
Total imports of the precious metal in 2017-18 stood at $33.7 billion as against $27.5 billion in 2016-17 and $31.8 billion in 2015-16. In volume terms, India imported 982 tonnes of the yellow metal in the previous financial year.
The imports in 2017-18, 2016-17 and 2015-16 were 955 tonnes, 778 tonnes and 968 tonnes, respectively.
India is one of the largest gold importers in the world, and the imports mainly take care of demand from the jewellery sector.
Gems and jewellery exports declined 5.32 per cent to $30.96 billion in 2018-19. The country's current account deficit (CAD), the difference between outflow and inflow of foreign exchange in the current account, increased to $57.2 billion or 2.1 per cent of gross domestic product in 2018-19 as against 1.8 per cent in the previous year.
Meanwhile, the gems and jewellery industry is disappointed with the Union Budget 2019-20, saying the increase in customs duty will negatively impact the sector, encourage grey market and make jewellery more expensive in the domestic market.
All India Gem And Jewellery Domestic Council chairman N Anantha Padmanaban said here that the increase in customs duty and GST will hike the prices by 15.5 per cent, which will benefit the grey market.
"Smuggling is already on the rise and this move will further boost the grey market, which will provide 4-5 per cent discount making it attractive for consumers. We expect the grey market will increase by 30 per cent," he said.
Padmanaban said, the all industry bodies are planning to meet the finance minister next week to request immediate roll back of hike in customs duty.
Echoing a similar view, World Gold Council Managing Director, India, Somasundaram PR said "Today's announced import duty hike on gold from 10 per cent to 12.5 per cent will negatively impact India's gold industry. It will impede efforts to make gold as an asset class particularly when gold prices are already rising globally."
In addition, he said, the grey market will thrive which will dilute efforts to reduce cash transactions. Gems and Jewellery Export Promotion Council vice chairman Colin Shah said the Budget 2019-20 is very disappointing for the industry.
"This move will harm the exports of gold jewellery, increase the cost of doing business and smuggling will grow," he added.
IBJA director national vice president and PNG Jewellers CMD Saurabh Gadgil said, the hike in customs duty will have a dampening effect on the market.
"However, the push for digitalisation and the shift to a cashless economy will strengthen the organised players in the industry, creating transparency and positive impact market sentiment. The introduction of zero tax liability for those in the Rs 5 lakh income will also align with our expansion in tier II-III markets, and augurs well for the industry as a whole,"
he added.
