Import duty on yellow metal raised to 8 percent.
R. Chandrasekaran
CHENNAI: The Government of India has initiated a series of moves aimed at discouraging investment in the yellow metal, concerned about its impact on the Indian currency and the overall current account deficit.
After lifting customs duty to 6 percent from 4 percent in January this year, the government raised import duty to 8 percent on gold on Wednesday. Absence of strong export orders was one big reason behind the latest move.
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On top of it, Finance Minister P. Chidambaram advised investing community not to invest in gold. He has advised the banks to counsel its customers against investing in gold as the increasing imports of gold are becoming unsustainable. He pointed out that the two-month average gold import accounted for over 150 tones compared to monthly average of 70 tones last year. The Reserve Bank of India has already advised the banks not to sell gold coins.
While speaking at the annual general meeting of the Indian Banks’ Association (IBA), the finance minister said, “I hope a day will come when we regard gold as any other metal, it just shines a little more than copper or bronze.” He added, “Banks have a role to play in dampening the enthusiasm for gold… I would urge all banks to please advise their branches that they should not encourage their customers to invest in or buy gold.”
The government is also not averse to introducing more measures to curb gold imports as April and May witnessed 142.5 tones and 162 tones respectively. It was particularly alarmed after the May gold import figure, which was over twice the monthly average of 2011, a record year.
Imports of gold in April and May estimated to have cost $15 billion. It directly affected the current account deficit, which is threatening to go beyond control. In fact, financial services secretary Rajiv Takru reportedly termed gold imports as “wasteful expenditure,” as it was unable to afford foreign exchange at the current levels.
While the fiscal deficit came in narrower than the government’s own estimation for the fiscal year ended March 2013, the trade deficit, especially due to the gold import impact, has been giving a lot of headaches to the government.
The government also seemed to have no alternative but to impose curbs on gold after announcing more sops for exporters to bridge the trade deficit gap. It is also mindful of the threat from the rating agencies such as Standard & Poor’s and Moody’s.
Any downgrade at this juncture may prove to be a major negative factor in attracting foreign investments. However, while the government’’s concern on gold import is quite understandable, there is also a view that more curbs will only encourage smugglers.
To contact the author, email to: rchandrasekaran@americanbazaaronline.com