Gold Import Duty Hike: In India, it’s traditional to buy gold and silver on auspicious occasions. However, the government has now increased the import duty on gold and silver to curb imports. This increase has more than doubled. Here are the four main reasons behind this tough government decision.
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Gold Import Duty Hike: The government has taken a major step to conserve the country’s foreign exchange reserves and strengthen the economy. The import duty on gold and silver has been increased from 6% to 15%. This decision is considered significant amid global uncertainties and rising crude oil prices. Following this decision, gold and silver will now attract a 10% basic customs duty and a 5% AIDC (Agriculture Infrastructure and Development Cess). This brings the effective tax rate to 15%. The four main reasons for this drastic decision are explained below.
Gold Import Duty Hike: Four main reasons for the drastic decision
Significant reduction in gold and silver imports
India is among the countries with the highest gold consumption globally, but almost all of its demand is met through imports. According to the World Gold Council, investment in gold ETFs increased by 186% to a record 20 tonnes in the March quarter. According to media reports, increasing duty will make imports more expensive and could reduce demand. Industry experts believe that recycling old gold and promoting the Gold Monetization Scheme are essential to reduce dependence on gold imports.
Reducing Pressure on Foreign Exchange Reserves
India pays for gold imports in US dollars. Rising global crude oil prices and escalating tensions between the US and Iran have increased demand for the dollar. Prime Minister Modi has urged citizens to conserve oil and postpone gold purchases to save precious foreign exchange. According to media reports, gold imports fell to a 30-year low in April. This is expected to further decline due to the increased duty.
Preventing the Rupee from Record Fall
The rupee is currently under significant pressure. According to a report by news agency PTI, the rupee closed at its lowest level ever at 95.68 per dollar. When gold or crude oil is imported from abroad, the demand for the dollar increases, further weakening the rupee. The government aims to stabilize the rupee by discouraging the import of non-essential items like gold.
Reducing the Trade Deficit
A country’s trade deficit increases when imports exceed exports. According to economists, gold is a non-productive import because it has no direct contribution to industrial production or exports. Combined with the high import bill for crude oil and electronics, gold poses a significant risk to the country’s economic health. Therefore, the government aims to improve the country’s trade balance by reducing the import bill.
Industry worried about this
The government’s decision was introduced to stabilize the country’s economy, but the jewelry industry has warned that a sharp decline in demand could impact the employment of millions of artisans and workers in the industry. Experts believe that the success of this policy will depend on how effectively the government implements domestic gold recycling.
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