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Gold price to go up after import duty hike? All you need to know

India is the world’s second biggest consumer of gold and the decision has been taken aiming to dampen its demand and bring down the trade deficit.

HIGHLIGHTS

  • Import duty on gold has been hiked by 5 per cent
  • Import duty on gold goes up from 7.5% to 12.5%
  • If surcharge is added then it reaches 15 per cent

The central government on Friday announced that it has raised its basic import duty on gold to 12.5 per cent from 7.5 per cent. According to a notification issued by the Finance Ministry, the import duty on gold has been hiked by five per cent. If the surcharge is taken into account, then the import duty on the precious metal effectively reaches 15 per cent from the current 10.75 per cent.

India is the world’s second biggest consumer of gold and the decision has been taken aiming to dampen its demand and bring down the trade deficit. India fulfils most of its gold demand through imports, which were putting pressure on the rupee that hit a record low earlier on Friday.

GOLD PRICE TO GO UP?

The duty hike would lift gold prices and moderate demand in India, which could weigh on global prices. But it could stoke under-the-counter buying and drive-up an appetite for precious metal smuggled into the country, trade officials said, Reuters reported.

“The sudden rise in prices could bring down jewellery demand this month,” said Prithviraj Kothari, managing director of RiddiSiddhi Bullions.

After the duty hike, dealers were offering a discount of up to $40 an ounce over official domestic prices — inclusive of the 12.5 per cent import and 3 per cent sales levies, according to a Reuters report.

In the short-term gold demand could fall but in the long run demand would remain strong and imports would rebound, said Surendra Mehta, secretary at the India Bullion and Jewellers Association (IBJA).

After the duty announcement, local gold prices rose around 3 per cent, while global prices fell 0.5 per cent.

The hike has raised the gap between local and overseas prices to more than 15 er cent and this could boost smuggling of gold in the country, a Mumbai-based dealer with a global trading firm was quoted as saying by Reuters.

“Smuggling was falling after the duty reduction and because of Covid-19 curbs on movement of people. But now it could rise again,” the dealer said.

India’s May trade deficit widened to $24.29 billion from $6.53 billion a year ago as gold imports in the month surged to $6 billion from 678 million a year ago.

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