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India has
raised import duty on gold to 15 per cent from 10.75 per cent to check current
account deficit (CAD) and rising import of the yellow metal, the government
notified on Friday. The duty changes came into effect from June 30.
While the
majority of India's gold needs are met by imports, which however placed a
pressure on the rupee (hit a record low earlier this week), in order to reduce
inflows to the world’s second-largest consumer, India increased its import tax
on gold in a surprise move today. India’s gold
purchases had been increasing since last year after buying declined during the
pandemic.
Prior to this, the basic customs duty on gold was 7.5 per cent, now it will be
12.5 per cent. Along with agriculture infrastructure development cess (AIDC) of
2.5 per cent, the effective gold customs duty will be 15 per cent.
"There has been a sudden surge in imports of gold. In the month of May, a
total of 107 tonnes of gold was imported and in June also the imports have been
significant. The surge in gold imports is putting pressure on the current
account deficit," The Finance Ministry said.
The World Gold Council reports that India's gold imports reached their highest
level in ten years in 2021.
Although the Centre had disregarded any knee-jerk reaction that would have
impacted the ongoing economic recovery, it had remained alert after the trade
imbalance reached a record $24.3 billion in May.
India has in the past imposed restrictions or raised customs tariffs to curtail
imports of certain goods. Such curbs could however undermine economic growth
that has held firm in the current fiscal year despite multiple headwinds.
India's current account balance showed a deficit of 1.2% of GDP in FY22 against
a surplus of 0.9% in F21 as the trade imbalance widened to $189.5 billion from
$102.2 billion a year ago. Fitch Ratings had said earlier this month that CAD
could rise to 3.1% of GDP in FY23. The finance ministry had also flagged the
issue in its latest monthly report
