Mumbai: India gold demand retreated on Monday afternoon from an early morning pick-up after the government hiked import duty in the budget for 2009/10, dealers said.
“There was demand since morning. But the duty hike is holding traders back now,” said Pinakin Vyas, chief manager treasury with IndusInd Bank.
“A weak rupee after the budget also dented demand,” said another dealer with a state-run bank.
A weak rupee makes the dollar-quoted asset expensive. Indian shares fell more than 5% and the rupee dropped to its lowest in a week as new growth spending announced by the government fueled investor fears about the growing fiscal deficit.
Finance minister Pranab Mukherjee said import duty on gold bars is being raised to Rs200 ($4.1) per 10 grams from Rs100 earlier.
The minister said import duty on silver is being raised to Rs1,000 ($20.7) per kg from Rs500 earlier.
Traders said the additional imposition of duty would bruise sagging demand already hurt by high prices.
“We would not be able to achieve targeted imports due to this duty now,” said Vyas.