Govt hikes gold and silver duties

The Indian government took yet another step to limit the imports of gold and silver, to counter the country’s widening current account deficit. Gold is an asset that may be viewed as being unproductive by some but Indians have traditionally viewed them as a safe investment and a coveted accessory. That has created a headache for India as the imports of precious metals is putting a big burden on the economy.

The government’s previous attempts at hiking the import duty on gold did have some initial impact but not enough. Between April-July 2013, gold imports have risen by 87% compared to the same period last year, that’s 178 tonnes more or to make it seem more impressive 1.78 crore 10-gram bars. In value terms, that’s Rs 38,604 crore of incremental spends on gold imports.

So, the government has decided to take one more round of duty hikes to make gold imports more expensive and is also increasing the duty on silver. The move will also help raise revenues for the government.

Here are the duty changes:

  • Customs duty on gold and platinum will increase from 8% to 10% and on silver from 6% to 8%
  • Additional customs duty on gold will increase from 6% to 8% and on silver from 3% to 7%
  • Excise duty on gold is increasing from 7% to 9% and excise duty on gold or silver that is made as a by-product while producing any other metal (lead, zinc, copper) will see an increase in duty from 4% to 8%.
  • All of this will make these metals more expensive, no doubt, but it also coincides with a time when the international prices of these metals have declined in response to the strength of the dollar. Gold prices have declined by about 18% in dollar terms and silver by about 20% from over a year ago.

The coming months will see a lot of festival-related gold buying and meagre duty hikes are not likely to make a significant dent in the gold-buying habits of Indians.

If the government had hiked duties by a higher proportion, it may have had a bigger impact though the risk of illegally imported gold will increase. Also, elections are due in 2014 and a government that makes it very expensive for Indians to indulge in their pet hobby will find it on the wrong side of the voters.

The announcement had some impact on jewellery stocks though not a very substantial one. On Tuesday Titan Industries’ share declined by 1.1%, Tribhovandas Bhimji Zaveri was down by 0.7%, while PC Jeweller was up by 1% but all these shares regained ground on Wednesday.

Read the government press release here.

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