India hikes gold import duty, industry fears smuggling surge

Share This Post

India alters Gold imports to reduce smuggling

By Rajendra Jadhav

MUMBAI (Reuters) – India raised the import duties on gold and other precious metals on Friday in a surprise move that industry officials say could dampen retail demand and boost smuggling in the world’s second-biggest bullion consumer.

Lower demand from India could weigh on global prices that are trading near their highest level in six years.

Jewellery trade associations have asked India’s government to reduce gold import duties, which have caused a surge in smuggling.

The government instead hiked the duty to 12.5% from 10% as policymakers try to bring down the fiscal deficit and recapitalise banks.

“This is a shocking move. We were expecting reduction in the custom duty,” Anantha Padmanabhan, chairman of All India Gem and Jewellery Domestic Council (GJC) told Reuters, adding the hike has effectively raised smugglers’ margins.

Gold smuggling surged in India after the government raised the import duty to 10% in August 2013. Grey market operators – businesses that smuggle gold from overseas and sell it in cash to avoid the duties – got a further boost in 2017 when India imposed a 3% sales tax on bullion.

The south Asian country also raised import duty on gold dore or non-refined mined gold, to 11.85% from 9.35% and to 11% from 8.5% on silver dore, Finance Minister Nirmala Sitharaman said in her first federal budget speech on Friday.

India has been trying to bring transparency in bullion trading by curbing cash transactions but the hike “will dilute efforts to reduce cash transactions”, said Somasundaram PR, the managing director of the World Gold Council’s Indian operations.

Gold futures jumped over 2% after the announcement to a record high of 35,100 rupees ($512.82) per 10 grams.

The high local prices may also further weaken demand, said Snehal Choksey, director at Shobha Shringar Jewellers.

Shares of jewellery makers such as Titan, P C Jeweller, Tribhovandas Bhimji Zaveri Ltd and Thanga Mayil Jewellery Ltd fell as much as 7.8%.

Up to 95 tonnes of gold was smuggled into India in 2018, according to the WGC.

“Legal imports would fall and smuggling could rise above 200 tonnes this year,” said a Mumbai-based dealer with a gold importing private bank.

Industry officials fear the higher duties could prompt customers to buy jewellery from some informal jewellers who use smuggled gold to make ornaments.

“The increase in custom duty makes gold sold by organised retailers more expensive and encourages customers to buy from unorganized jewellers,” said Vaibhav Saraf director of Aisshpra Gems & Jewels.

($1 = 68.4450 Indian rupees)

Source: Reuters

More To Explore

Part VI of the 2024 Gold Forecast Series

The Election of 2024 A Country Divided According to an August 2023 Gallup Poll, political polarization in the United States has increased dramatically, particularly on issues relating to federal power,

PART V of the 2024 Gold Forecast Series

The Volatility Watchlist Household Debt U.S. households are enduring economic headaches on multiple fronts including high inflation, soaring mortgage rates,  rising gas prices, and evaporating pandemic savings. According to data released

PART IV of the 2024 Gold Forecast Series

Geopolitical Forces in Play War in Ukraine The War in Ukraine has disrupted global trade, created energy price shocks, and slowed the world’s economic recovery from COVID-19. For the United