India Raises Import Duty On Gold To 8%.

NEW DELHI – The government on Wednesday raised the import duty on gold to 8% from 6% in a bid to rein in import of the yellow metal and help curb a yawning current account deficit.

A finance ministry statement said the government had raised the basic customs duty on gold and platinum from 6% to 8% and the changes come into effect immediately. It said that the government had taken the measures after being satisfied that it was necessary to do so in public interest. This is the second time that the government has raised the import duty on the yellow metal in a desperate attempt to curb imports. In January, the government had raised the duty to 6% from 4%.

The government and the Reserve Bank of India (RBI) have taken several measures in the past few months to tame gold imports, which is partly blamed for the widening of the current account deficit (CAD). The CAD widened to a record 6.7% of gross domestic product in the December quarter. For the full financial year, it is expected to ease to 5% but way above the central bank’s comfort range of 2.5% to 3%.

The move comes after gold imports shot up to 162 tonnes in May, according to latest government data. The yellow metal imports touched $15 billion in the past two months raising fresh worries about the impact on the CAD.

The central bank had extended the restrictions on gold imports to other agencies apart from banks. It had also stopped banks and non-banking financial companies from providing loans against gold coins. Economists said raising import duty to curb gold imports may not be effective and may give rise to smuggling.

“It might help in the short-term but it may not be an effective strategy in the long term,” said DK Joshi, chief economist at rating agency Crisil. He said financial savings instruments have to be diversified and made attractive to wean away investors from depending on gold.

Source : thelinkpaper.ca