Govt Also Eases Deposit Norms To Curb Demand
New Delhi: The government on Monday sought to dampen the demand for precious metals by jacking up the import duty on gold and platinum to make them more expensive and help manage the economy better. Simultaneously, the Centre stepped in to move the yellow metal lying in lockers to revamp gold deposit schemes from banks as part of the plan to stem the demand.
The immediate pinch will be felt due to an increase in customs duty from 4% to 6%, although the move may spark illegal flow of the precious metals into the market. Traders said gold price, which went up by Rs 315 to Rs 31,250 per 10 grams immediately after the finance ministry announced the decision on Monday afternoon, will rise in the coming days as the market factors in the impact.
"The two percentage point increase will translate into a proportionate rise in the price of jewellery and bars," Jayant Manglik, president, retail distribution at Religare Broking, said.
Within a span of a year, gold, which attracted around 1% import duty, has seen a spike in levies as the government grapples with a widening trade and current account deficit (CAD), which is putting pressure on the rupee. CAD is the difference between exports and imports, net FDI and FII flows, remittances and overseas borrowings by local companies. While exports have shrunk, imports have been steady due to runaway appetite for gold and the steady demand for edible oil and crude petroleum. In fact, the widening trade deficit has negated the impact of higher inflows from other sources. As a result, the rupee has remained under pressure, and continues to hover around Rs 54-55 to a dollar despite the government's efforts to revive investor sentiment and attract overseas funds.
"It is difficult to establish the impact (of the tax) on CAD and by how much it will come down, but there will be some moderation in gold demand," economic affairs secretary Arvind Mayaram told reporters. Though import duty has risen, gold demand, after witnessing moderation, has been on a rising trajectory, creating a policy challenge as the government battles the threat of aratings downgrade.
LOSING GLITTER
The hike in gold customs duty from 4% to 6% will translate into a proportionate rise in prices of jewellery and bars
The move may spark illegal flow of gold into the market
Govt trying to encourage people to earn income on idle assets lying in bank lockers
Revamped gold deposit scheme will see minimum quantity deposited reduced from earlier 200gm, while
minimum tenure will be cut from 3 years to 6 months
But need to melt jewellery
may dampen interest
The immediate pinch will be felt due to an increase in customs duty from 4% to 6%, although the move may spark illegal flow of the precious metals into the market. Traders said gold price, which went up by Rs 315 to Rs 31,250 per 10 grams immediately after the finance ministry announced the decision on Monday afternoon, will rise in the coming days as the market factors in the impact.
"The two percentage point increase will translate into a proportionate rise in the price of jewellery and bars," Jayant Manglik, president, retail distribution at Religare Broking, said.
Within a span of a year, gold, which attracted around 1% import duty, has seen a spike in levies as the government grapples with a widening trade and current account deficit (CAD), which is putting pressure on the rupee. CAD is the difference between exports and imports, net FDI and FII flows, remittances and overseas borrowings by local companies. While exports have shrunk, imports have been steady due to runaway appetite for gold and the steady demand for edible oil and crude petroleum. In fact, the widening trade deficit has negated the impact of higher inflows from other sources. As a result, the rupee has remained under pressure, and continues to hover around Rs 54-55 to a dollar despite the government's efforts to revive investor sentiment and attract overseas funds.
"It is difficult to establish the impact (of the tax) on CAD and by how much it will come down, but there will be some moderation in gold demand," economic affairs secretary Arvind Mayaram told reporters. Though import duty has risen, gold demand, after witnessing moderation, has been on a rising trajectory, creating a policy challenge as the government battles the threat of aratings downgrade.
LOSING GLITTER
The hike in gold customs duty from 4% to 6% will translate into a proportionate rise in prices of jewellery and bars
The move may spark illegal flow of gold into the market
Govt trying to encourage people to earn income on idle assets lying in bank lockers
Revamped gold deposit scheme will see minimum quantity deposited reduced from earlier 200gm, while
minimum tenure will be cut from 3 years to 6 months
But need to melt jewellery
may dampen interest
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