NEW DELHI: India hiked the import duty on gold yet again to a record 10 per cent and also raised excise duty on the metal, after Indians bought more in July despite attempts to strangle supply and curb demand as the government tries to rein in dollar spending.
Gold is India’s biggest luxury import and helped swell the current account deficit to an all-time high in 2012/13. A series of tax hikes and constraints on supplies appeared to stem demand and imports fell in June to $2.45 billion.
But imports revived to $2.9 billion in July, confirming the resilience of demand in the world’s biggest buyer of bullion and prompting further action from a government hoping to contain gold imports “well below” last year’s 845 tonnes.
Indians imported 335.5 tonnes in April to June 2013. A rupee at record lows, which makes domestic purchases costlier despite falling global prices, has still failed to falter demand.
Import duty on refined gold bars will now be 10 percent compared to 8 percent previously, the third hike in eight months, while factory gate duty on gold bars will be 9 percent against 7 percent earlier.
The federal government also raised on Tuesday the import duty on silver to 10 percent from the earlier 6 percent.
Industry players and analysts said hiking import duty would not necessarily help the government achieve its aims.
“When they imposed 2 percent duty (on gold), imports were less, and after increasing the duty imports have increased. Our main suggestion to the government has been that increasing import duty wouldn’t solve our problem of the current account deficit and imports,” said Haresh Soni, chairman of All India Gems and Jewellery Trade Federation.
Analyst Victor Thianpiriya at ANZ in Singapore said the duty hike could encourage illegal purchases.
“Bottom line is this could further increase smuggling and further push up domestic premiums that are already at record levels,” he said.
Premiums that Indian buyers must pay over London prices for domestic deliveries are currently around $45 an ounce – up sharply from $30 an ounce last week, Soni added.
India’s supply constraints have already prompted a surge in imports for its neighbours, and Pakistan has banned foreign purchases for a month while Sri Lanka had already hiked its own import duty to 10 percent to try to control trade.
The government said the extra duties could boost its revenues by $790 million for the rest of this fiscal year ending March 31, 2014.
Silver imports are a tiny fraction of gold although there may have been some increased buying recently to substitute expensive gold.