India has raised import duty on gold to 15 per cent from 10.75 per cent to check current account deficit (CAD) and rising import of the yellow metal, the government notified on Friday. The duty changes came into effect from June 30.
Prior to this, the basic customs duty on gold was 7.5 per cent, now it will be 12.5 per cent. Along with agriculture infrastructure development cess (AIDC) of 2.5 per cent, the effective gold customs duty will be 15 per cent.
“There has been a sudden surge in imports of gold. In the month of May, a total of 107 tonnes of gold was imported and in June also the imports have been significant. The surge in gold imports is putting pressure on the current account deficit,” The Finance Ministry said.
While the majority of India’s gold needs are met by imports, which however placed a pressure on the rupee (hit a record low earlier this week), in order to reduce inflows to the world’s second-largest consumer, India increased its import tax on gold in a surprise move today.
India’s gold purchases had been increasing since last year after buying declined during the pandemic.
The World Gold Council reports that India’s gold imports reached their highest level in ten years in 2021.
Although the Centre had disregarded any knee-jerk reaction that would have impacted the ongoing economic recovery, it had remained alert after the trade imbalance reached a record $24.3 billion in May.
India has in the past imposed restrictions or raised customs tariffs to curtail imports of certain goods. Such curbs could however undermine economic growth that has held firm in the current fiscal year despite multiple headwinds.
India’s current account balance showed a deficit of 1.2% of GDP in FY22 against a surplus of 0.9% in F21 as the trade imbalance widened to $189.5 billion from $102.2 billion a year ago. Fitch Ratings had said earlier this month that CAD could rise to 3.1% of GDP in FY23. The finance ministry had also flagged the issue in its latest monthly report.
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