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Business News/ Politics / Policy/  Govt hikes import duty on gold and silver to 10%
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Govt hikes import duty on gold and silver to 10%

This
marks the fourth round of customs duty hikes on the yellow metal in the last 20 months

Gold imports fell to 31 tonnes in June this year from 161 tonnes in May, but increased to 47 tonnes in July. Photo: BloombergPremium
Gold imports fell to 31 tonnes in June this year from 161 tonnes in May, but increased to 47 tonnes in July. Photo: Bloomberg

New Delhi: The government on Tuesday raised import duties on gold, silver and platinum as part of its strategy to squeeze non-essential imports in order to reduce the pressure on the current account deficit.

Despite fears of triggering an increase in gold smuggling, this
marks the fourth round of customs duty hikes on the yellow metal in the last 20 months.

Finance minister P. Chidambaram indicated on Monday that the government is likely to announce more measures to curb other non-essential imports, including luxury items, as it looks to contain the current account deficit to 3.7% of gross domestic product (GDP) in 2013-14 compared with 4.8% of GDP in the last fiscal year.

The finance minister announced a slew of measures to ensure adequate capital inflows into the country, including asking public sector financial institutions to raise funds abroad through quasi-sovereign bonds, liberalizing external commercial borrowing guidelines and NRE (non-resident external account)/FCNR (foreign currency non-resident) deposit schemes.

Though the government and the Reserve Bank of India (RBI) have taken steps in the last few months to reduce the demand for gold imports, including by placing restrictions on the import of gold by banks and loans against gold coins by banks and non-banking financial companies, they have not achieved the desired results. Gold imports fell to 31 tonnes in June this year from 161 tonnes in May, but increased to 47 tonnes in July.

“The sustained increase in gold imports is mainly because of investment reasons. People are losing faith in the currency and purchasing gold. Till the rupee does not stabilize, the hunger for gold will remain," said Rajesh Chakrabarti, executive director at the Bharti Institute of Public Policy.

The Indian rupee has depreciated by more than 6% since May. It touched a record low of 61.80 last week despite liquidity tightening measures taken by RBI to reduce volatility and speculation in the currency market. The rupee ended marginally higher on Tuesday at 61.20, up 0.13% from the previous close of 61.28.

“Though the import duty hikes may see some impact on demand in the short term, they are unlikely to stem the long-term demand for gold," Chakrabarti said. “Such a sustained increase in import duty will see more trade going underground."

The finance ministry on Tuesday also raised additional customs duty on gold bars to 8% from 6% and on silver bars to 7% from 3%. The excise duty on refined gold bars was raised to 9% from 7% and on silver to 8% from 4%.

The government expects revenue of 4,830 crore from the duty hikes for the rest of the fiscal year ending 31 March 2014, Reuters reported.

Data released by the Central Board of Excise and Customs (CBEC) shows that the increase in import duties has seen a corresponding rise in gold smuggling. There were 220 cases of smuggling detected in the first quarter of the current fiscal year, amounting to 59.82 crore, against 204 cases totalling 12.86 crore in the corresponding period a year ago and 64 cases worth 9.82 crore in the first quarter of 2011-12. In the current fiscal year, gold has been smuggled in the form of a mix of jewellery and gold bars, against mainly jewellery in the last fiscal year.

In the full fiscal year 2012-13, there were 859 detected cases of smuggling valued at 99 crore against 487 cases totalling 47 crore in 2011-12.

Revenue secretary Sumit Bose said that the government has taken the risk of smuggling into account while deciding to raise import duty. He added that field formations of CBEC have been alerted to check smuggling.

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Published: 13 Aug 2013, 02:56 PM IST
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