High import duty fails to curb Indians' gold hunger

High import duty fails to curb Indians' gold hunger

Indians’ appetite for gold looks far from satiated despite tough regulations imposed by the Centre and its efforts make other financial instruments a more attractive investment option.

According to official sources, the country’s gold import went up by $2.5 billion in the past two months (September-October). Traders believe gold import will further rise in the coming months due to festive demand and the onset of wedding season.

But, the rising trend in gold import is expected to compound the Centre’s woes, which is already grappling with high current account deficit and an equally high trade deficit.
The trade deficit for October has come in at $21 billion, which is a record high. Much of this rise in the trade gap is due to surge in gold import. Oil import also increased.

Sources said, the continuous rise in gold import may prompt the Centre to take steps to make financial asset side more attractive so that people’s appetite for gold declines.
In the Union Budget, the government doubled the import duty on gold from 2 to 4 per cent, which reflected in immediate contraction of gold import in April, but the impact did not last long.

The current account deficit (CAD) still remains a problem despite raising import duty on gold, the prime driver of CAD. The duty hike on gold was also expected to help rupee appreciation in the longer run. However, much to the contrary, the rupee continues to depreciate and be volatile and gold import on the rise.

According to data from the World Gold Council, in the September quarter India’s gold imports increased 9 per cent to 223 tonne. Gold Exchange Traded Funds (ETF) saw a record influx of Rs 500 crore in the September quarter, quite contrary to the global gold demand that dropped more than 10 per cent during the same period.

Demand for gold surged from rural areas, which account for nearly 60 per cent of India’s total gold demand, after the onset of monsoon.

Although the Centre announced a number of schemes to encourage investments in the mutual funds and insurance sectors to dissuade people from investing in gold, the move is yet to bear fruit.

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