New Delhi/Mumbai: Increase in customs duties on precious metals will hit imports of gold just as they were starting to bounce back from sharp falls in 2009, traders and analysts said on Friday.
In the Union Budget 2010-11 on Friday, the government raised the duty on imports of gold and platinum to Rs300 ($6.5) per 10 grams from Rs200 earlier.
For silver, finance minister Pranab Mukherjee set a new duty of Rs1,500 per kg from Rs1,000 earlier.
The new duties come into affect from Friday midnight.
Traders and analysts agreed the duty hike, which followed one in the Budget a year ago, would be detrimental to imports but there were mixed views on the extent to which they would be hit.
“This import hike will have an immediate adverse impact on consumers,” said Pinakin Vyas, assistant vice-president with IndusInd Bank in Mumbai. “We see a 25% fall in gold imports due to the import duty hike and price surge.”
Another analyst said because of the higher duties, imports might stagnate at last year’s levels. “Imports should remain the same a last year,” said T. Gnanasekar, director, Commtrendz Research from Mumbai.
In 2009, gold imports were 339.8 tonnes, down 19% from 2008 as record high prices lowered the appetite for the metal in the world’s largest market for gold, data from the Bombay Bullion Association (BBA) showed.
In January and February, some stability in international prices below December’s record high helped imports recover. On Friday, gold traded at $1,108 an ounce, about 10% lower than a record high of $1,226.1 an ounce on 3 December. In January, India imported 34 tonnes of gold, up from 9.8 tonnes a year earlier and in February, imports were seen around 30-35 tonnes from 7.9 tonnes a year earlier, according to the BBA.
“This import tax will hurt import numbers again, especially when gold (import) is rising again,” said Vishal Patel, a sales trader at Commerzbank.
On the Multi Commodity Exchange of India (MCX), silver was up 1.2% in evening trade, and gold was up 0.4%.
Refining, manufacturing encouraged
In the Budget, the government lowered the duty on gold ores and concentrates. That is expected to help local refining operations, a small sector of the industry.
“Duty on gold ores and concentrates has been reduced which will promote the domestic refiners,” Anjani Sinha, president, Indian Bullion Market Association, a trade body representing jewellers.
But an analyst did not see an immediate rise in imports of gold ores and concentrates.
“I don’t see how many refineries there are with big capacities for import of raw gold,” said Nayan Pansare, an indepentent analyst who works for gold jewellery-exportng companies.
“In future capacities can be created, but a lot of investment would be needed as gold refining creates pollution.”
Basic customs duty on gold ore and concentrates was reduced from 2% ad valorem to a specific duty of Rs140 per 10 grams in the Budget.
The excise duty on refined gold made from such ore or concentrate reduced from 8% to a specific duty of Rs280 per 10 grams.
Overall, the industry is bracing for higher gold prices, with international prices firmly above $1,000 an ounce and the higher duties expected to support local prices.
“Jewellers have priced in the duty,” said Suresh Hundia, president of the Bombay Bullion Association.
“Already the bullion industry has seen so much loss. This will further hurt the industry,” Hundia said.