Govt raises gold import duty, hopes for a fall in demand

Barely a month before Finance Minister P Chidambaram presents the Budget, the finance ministry Monday raised the import duty on gold and platinum to 6 per cent from 4, and announced measures to augment domestic supply of the yellow metal.

"It is difficult to establish the impact on the current account deficit (CAD), but there will be some moderation in the demand for gold, not only from the import duty increase but also due to unlocking gold from the ETFs," said Arvind Mayaram, secretary, department of economic affairs.

Gold prices rose by Rs 315 to Rs 31,250 per 10 gm in Delhi following the announcement. Chidambaram had earlier this month hinted at a possible increase in the customs duty for gold imports, which are a big drain.

About $38 billion worth of gold had been imported this fiscal year until December, even as the CAD touched 4.6 per cent of the GDP in the first half of 2012-13. Gold imports stood at $56.5 billion in 2011-12. The two percentage point import duty increase, which comes into effect immediately, will be "reviewed after some time if there is a moderation in the quantity of gold imports," Mayaram said. He also appealed to people to moderate their demand for gold.

To improve the domestic supply of gold, the finance ministry will also link gold exchange traded funds and the gold deposit scheme. This will help unlock gold assets physically held by mutual funds under gold ETFs and enable them to deposit the gold with banks under the gold deposit scheme.

Additionally, to encourage individuals to participate in the scheme, banks will be directed to lower the threshold for deposit of gold and reduce the tenure of such deposits to six months from the current three years. Market regulator SEBI and the RBI will issue notifications on gold ETFs and gold deposit schemes in about three weeks.

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