India raises import tax on gold to 12.5% from 7.5%

AFP

India has raised its basic import duty on gold to 12.5 per cent from 7.5 per cent, the government said on Friday, as the world's second biggest consumer of the precious metal tries to dampen its demand and bring down the trade deficit.

India fulfils most of its gold demand through imports, which were putting pressure on the rupee that hit a record low earlier on Friday.

The duty hike would lift prices and moderate demand in India, which could weigh on global prices. But it could stoke under-the-counter buying and drive-up appetite for precious metal smuggled into the country, trade officials said.

"The sudden rise in prices could bring down jewellery demand this month," said Prithviraj Kothari, managing director of RiddiSiddhi Bullions.

After the duty hike, dealers were offering a discount of up to $40 an ounce over official domestic prices — inclusive of the 12.5 per cent import and 3 per cent sales levies.

India's May trade deficit widened to $24.29 billion from $6.53 billion a year ago as gold imports in the month surged to $6 billion from 678 million a year ago. 

In the short-term gold demand could fall but in the long run demand would remain strong and imports would rebound, said Surendra Mehta, secretary at the India Bullion and Jewellers Association (IBJA).

After the duty announcement, local gold prices rose around 3 per cent, while global prices fell 0.5 per cent.

The hike has raised the gap between local and overseas prices to more than 15 per cent and this could boost smuggling of gold in the country, said a Mumbai-based dealer with a global trading firm.

"Smuggling was falling after the duty reduction and because of COVID-19 curbs on movement of people. But now it could rise again," the dealer said.

Shares of jewellery makers such as Titan, Kalyan Jewellers and Tribhovandas Bhimji Zaveri were down as much as 4 per cent in weak Mumbai market.

More from Business

  • Abu Dhabi launches greenhouse gas study

    Abu Dhabi Waste Management Centre (Tadweer) has signed a consultancy agreement with KEO International Consultants to conduct a feasibility study for developing a project on extracting greenhouse gases from Al Dhafra landfill and converting them into environmentally-friendly energy.

  • DXB posts huge surge in passenger traffic

    A steady surge of growth throughout the second quarter has propelled Dubai International’s (DXB) half yearly traffic to 27.9 million passengers, just 1.2 million shy of the airport’s total annual traffic last year.

  • Travellers set for enhanced Abu Dhabi Airport experience

    Getting through Abu Dhabi Airport is set to become a lot smoother following the signing of an agreement with the Federal Authority for Identity, Citizenship, Customs and Port Security (ICP).

  • Bengaluru next stop for Emirates' A380

    Bengaluru will be the second city in India to be served by the Emirates A380 aircraft.

  • DEWA's High-Water Usage Alert saves billions of gallons

    Dubai Electricity and Water Authority (DEWA) announced that its High-Water Usage Alert service has helped save over 9 billion gallons of water and reduced carbon emissions by 217,370 tonnes since its launch three years ago, up until June 30.