Gold imports for India, the world’s largest consumer of yellow metal, are likely to fall significantly in 2012 due to increases in the customs duty.
India’s Finance Minister, Pranab Mukherjee, this past week proposed to double the customs duty on gold to 4 percent soon after fixing the import tax on gold at 2 percent of its value in January from the earlier flat rate of INR 300 per 10 grams. He also proposed increasing the excise duty, a type of tax charged on goods produced locally, on refined gold from 1.5 percent to 3 percent and some other taxes.
“The demand will be impacted because of the increase in the import duty,” said Anjani Sinha, the president of Indian Bullion Market Association (IBMA), which is promoted by National Spot Exchange Ltd. and the leading bullion dealers of India. “The bullion dealers will be reducing their imports.”
He projected that the country’s gold imports could be around 500 to 600 metric tons in 2012, sharply reduced from 969 tons estimated for 2011.
Sinha said that the domestic gold is likely be used for meeting Indian demand and ruled out any shift in the consuming pattern of shoppers. “Only the quantity consumed by the customer will reduce,” he noted.
He also stated that the government is unlikely to change its stance on the tax proposals despite local jewelry associations extending their strike to protest against the hike in import and other duties.
Indian bullion traders, unhappy with the finance minister’s announcement for the gems and jewelry industry in the Union Budget 2012-13, have been on strike to oppose the proposed measures.
“The government is in the mood of reducing gold imports due to current account deficit,” Sinha said.
The country’s gold imports by value have increased from $4.1 billion in 2001 and 2002 to $33.8 billion in 2010 and 2011 due to the metal’s record price run coupled with rising demand in the country, and at these levels imports are a huge burden on the balance of payments and accentuate the current account deficit, according to the Associated Chambers of Commerce and Industry of India (ASSOCHAM). It has warned that India’s gold imports could reach $100 billion by 2015 and 2016 if the government does not monitor inflows more strictly.
Sinha, who is also the chief executive of the National Spot Exchange Ltd. (NSEL), stated that the exchange is planning to launch electronic spot contracts in platinum in the first week of April.