Hike in customs duty to raise gold prices

The FM move to double customs duty on gold

in the latest Budget is expected to increase the retail jewelry prices resulting in a fall in demand. Higher gold prices have already lowered jewelry demand by 44 per cent to 103 tons in the December quarter, according to the World Gold Council data. The latest move is being termed as discouraging by industry bodies and they have expressed displeasure saying, while competing countries like China backs gold by offering various schemes to its citizens, the Indian government has only discouraged gold import to tackle its balance of payment crisis. The impending move will only worsen the demand for yellow metal coupled with an increase in gold imports through unofficial channels resulting in revenue loss to the government.

Gold imports declined by 42 per cent in the December quarter due to rising prices and various measures taken by the Government. A record 969 tons of gold were imported in 2011 when spot gold prices touched a high of $1,790 a ton in February. In January, the government had changed the duty structure on gold by applying a variable rate of two per cent on price against Rs 300 for 10 grams. In February, the minimum base price for calculating gold import duty was fixed at $556 for 10 grams.