A rise in gold smuggling has pushed India to look into cutting its import duty on the precious metal as illegal activity is hurting official profits."The Indian government is set to unveil its annual budget for the upcoming 2023-24 fiscal year (April-23-March-24) on 1st February," said Metals Focus in its report Monday. "Under normal circumstances, any changes in the customs or import duty also tend to be revealed at this time."
A lower import duty would lower the price of gold in India and increase demand, said government and industry officials. "The government is aware of problems created by the higher duty structure and they will be fixed soon," Reuters quoted one government official.Another official said a lower import duty is being considered, stating: "We will take a final call soon."The Ministry of Commerce confirmed the correlation between the higher import duty and smuggling, adding that the duty could be lowered in the next budget due February 1. "Smuggling is going up," Reuters quoted the commerce ministry official as saying.
The new budget would be an appropriate time to announce these changes, Metals Focus added. "The budget is important from the policy and regulatory perspective as several tax changes tend to be announced. ... Given that gold has seen several import duty changes over the years, the industry keenly awaits this event," analysts said in the report.India increased its gold import duty to 12.5% from 7.5% on July 1 to ease pressure on the rupee and bring down the trade deficit. Consumers now have to pay an 18.45% tax for refined gold when all taxes are summed up.
Emphasizing the industry's views, Malabar Gold & Diamonds founder and chairman MP Ahammed says India needs a robust gold policy that rationalises import duty and the gold retailers are expecting a favourable decision from the Centre in this regard. "Liberalizing imports will boost the organised domestic jewellery business," says Ahammed. He believes that the domestic gold demand, especially in rural India, is robust and rationalising import duty and standardising domestic gold prices across the country will further increase consumption. "The import duty reduction will act as a growth multiplier for the gems and jewellery industry as it will boost growth in jewellery exports and drive up retail gold sales, which will eventually boost the government's tax collections," he said.