NEW DELHI -- The government has raised the import tax on gold by 2
percentage points to 6 percent to curb purchases and rein in a ballooning
fiscal deficit but industry officials expect only a moderate drop in demand.
India's passion for gold, seen by many as a hedge against persistently
high inflation, has led to a rise in its current account deficit, which
reached an all-time high of 5.4 percent of gross domestic product in the
July-September quarter.
Alarmed by the mounting current account deficit, driven by largescale gold imports, the government raised the import
duty on gold and platinum to 6 percent from 4 percent.
"It is difficult to establish the impact (of the tax) on CAD (current
account deficit) and by how much it will come down, but there will be some
moderation in gold demand," Economic Affairs Secretary Arvind Mayaram, told reporters.
The tax would be reviewed if imports moderate, Mayaram
said.
The widening current account deficit has increased India's need for
foreign capital inflows and evoked memories of the 1991 balance of payments
crisis, when the Reserve Bank of India (RBI) sent 47 tonnes
of gold to Europe as collateral for a loan to avert a sovereign default.
India has been struggling with a trade deficit that has put the
country's current account balance under pressure. To revive exports, the
government last month extended an interest subsidy scheme for some exporters.
The duty hike and government's appeal to consumers to cut purchases
might not help, largely due to the penchant for gold in India, the world's
biggest importer.
India vies with China as top global consumer of gold, and with nearly
all demand covered by imports, the country's purchases are a major factor in
global prices.
Demand has declined only modestly so far following a 13 percent rise
in domestic gold prices last year and some higher taxes.
As the government started talking about curbing imports, industry
players said the sheer charm of gold and demand buoyed by heady inflation and
meagre savings would blunt the impact of any rise
in duties.
"The government's revenue will increase, but imports won't diminish,"
said Mohit Kamboj,
president of the Bombay Bullion Association.
Fundamental reasons for buying gold -- to hedge against inflation and
currency risks -- remain as strong as ever, said Amresh
Acharya, director, investments at the World Gold
council, a trade body funded by miners.
* * *
By Arup Roychoudhury and Siddesh
Mayenkar
Reuters
Tuesday, January 22, 2013
Read the rest of the article here
http://in.reuters.com/article/2013/01/21/gold-india-import-duty-idINDEE9...
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