The Indian government’s recent decision to significantly raise taxes on gold imports is being subject to increasing criticism from members of parliament, investors and dealers, with some describing the measures as an attack on traditional Indian culture. Many dealers are afraid that their businesses will suffer significant losses, and have been on strike since mid March. The government hopes that the new taxes will reduce the country's current account deficit and help strengthen the Indian rupee.
As stated in a letter from parliamentarian Shantaram Naik to Prime Minister Manmohan Singh, the Indian weeding season plays an important role in India's traditional culture. But a wedding season without gifts in the form of gold jewellery and ornaments is inconceivable to many Indians – the jewellery sector being an important cultural and economic bulwark for the nation. Drastic rises in gold import taxes will not only hurt numerous Indian gold and jewellery dealers, but will also negatively affect the wedding intentions of many Indians. In recent weeks hundreds of thousands of jewellery dealers have been protesting against the 4% raise in gold import taxes.
The Reserve Bank of India (RBI) has instructed banks to submit biannual reports on the amount and the financial value of gold imported by banks, agencies, import and export companies as well as by specific gold and jewellery traders. According to government statistics, between April and November 2011 Indian gold imports were worth US$46 billion – a total only surpassed by crude oil imports, which equalled $71 to $72 billion over the same period.
According to data from the World Gold Council, during 2011 India imported 969 tonnes of gold. During Q4 China outpaced India as the world's largest jewellery market, but India retained its position as the world's largest overall gold importer for the whole year. More than 80% of all members of the country’s jewellery industry have been on strike since the middle of March, urging the government to revise its measures. But the government doesn't seem interested in changing tack.
The All-India Gems & Jewellery Trade Federation worries that business will be lost to other Asian countries which also have a strong tradition in gold trading – such as the United Arab Emirates, Turkey and China. These countries have more liberal guidelines as far as gold trading is concerned – especially Dubai and Turkey, which are putting special emphasis on luring gold buyers. An increasing number of Indian traders are travelling to Dubai seeking gold bargains. Many hope to expand their business activities to Dubai in order to continue profiting from the gold boom.
