MUMBAI: Gold imports, which are down by over 50% in the calendar year to June from the same period last year, are likely to be hit due to an increase in customs duty on gold bars. Physical demand, which was already low on account of the rise in price above Rs 14,500 per 10 gm, will be constricted further, say traders.
The budget for FY10 stipulates a hike in import duty on gold bars to Rs 200 from Rs 100 per 10 gram and for silver to Rs 1,000 from Rs 500 per kg. In a bid to offset the duty hike, Pranab Mukherjee exempted branded jewellery from excise duty.
However, domestic bullion traders are unhappy with both the measures. While the hike in duty on gold and silver bars will hike the cost of manufacturing jewellery, removal of excise on branded jewellery will boost sales of imported jewellery at the cost of that locally made, according to Bombay Bullion Association president Suresh Hundia.
One of the largest bullion dealers in the country, Prithviraj Kothari of RisshiSiddhi Bullion feels that increase in custom duty will ‘encourage’ smuggling. Ajay Mitra, the managing director of Indian Subcontinent, World Gold Council, said difference in price between the internationally-sourced gold and Indian domestic gold widens between 3-3.5% (per 10 grams) due to the additional taxation. “This could lead to additional smuggling especially during periods of high demand during festival season,” he said.
According to BBA, gold imports fell to 61.8 metric tonnes during the first half of 2009, down 56% from the corresponding period last year. Silver shipments into the country have also declined sharply to around 54 tonnes compared to the regular monthly imports of around 100-300 tonnes.
Bullion analyst and director of commodity research firm Commtrendz, T Gnanasekar also feels that imports and physical demand will be negatively impacted. “There will not be any impact on the prices as they are governed by investment demand and several other factors,” he said. The duty on gold and silver had not been reviewed since 2004 even though prices have increased manifold from Rs 5,000-6,000 per 10 gram to current levels.
According to Vinod Hayagriv, chairman, All India Gems & Jewellery Trade Federation, the increased duty is acceptable as they had not been revised since many years despite an increase in gold prices. “There could be a marginal increase in prices but this can be easily absorbed looking at the inflation in gold,” he said. On the impact of excise removal on branded jewellery, Mr Hayagriv feels there would not be any major impact as duty was applicable on jewellery which was being sold with the jewellers mark or their brand. To save duty most of jewellers were selling without the brand or their mark.
Source : The Economic Times