Govt may reduce import duty on gold by 2-4%

CAD numbers give hope for duty cut

 After keeping it high for over two years, the government may reduce import duty on gold drastically down from the existing 10 per cent. The step is expected in the Budget to be presented in February or ahead of it.

 There is a widespread speculation for drop of two to four percentage points in the duty, which has stood at 10 per cent since August 2013. The import duty on gold was raised three times in 2013, from the initial four per cent.

 The commerce ministry is in talks with finance ministry for the measure and traders too have held meetings with officials who have responded in affirmative.

 “Initially there were some reservations but after the latest current account deficit numbers there is hope for a cut in duty,” an official told Deccan Herald.

 The measure to raise import duty on the yellow metal has badly affected gems and jewellery export besides giving a fillip to smuggling and reducing public interest in gold centric bonds and monetisation schemes.

 Labour intensive gems and jewellery exports in October dipped by about 13 per cent to $3.48 billion. India is the largest importer of gold in the world, which mainly caters to the demand of the jewellery industry.

 Analysts say a 10 per cent duty is a huge incentive to smuggling and as long as smuggling thrives, no government schemes on gold will be a success.

 Government met with a poor response to its gold deposit schemes launched last month. In the first fortnight of the scheme, the government could barely garner 400 grams out of an estimated 20,000 tonnes of gold lying idle with households and in temple vaults. Now, it is bringing about certain changes in the schemes to make them more attractive.

 The latest current account deficit (CAD) numbers for July-September quarter have shown an improvement over last year. This has given a hope for a cut in the duty. Gold and oil imports have traditionally been the main reason behind rising CAD.

The World Gold Council has said in its latest report that India's gold demand in the October-December quarter will be more muted. Lower global oil prices have already provided a cushion to the government on CAD front. “If things move as they are on the global front, cut in gold import duty may take place sooner than later,” the official said.

Big boost

     Duty on gold was raised three times in 2013
     Hike in duty had badly affected gems and jewellery export
     Import duty gold currently stands at 10%
     10% duty is a huge incentive to smuggling