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India Hints at Raising Gold Import Duty

Jan 3, 2013 1:42 AM   By Dilipp S Nag
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RAPAPORT... India  may consider raising the import duty on gold in order to control its ‎widening current account deficit. ‎‎The country’s deficit for the first fiscal half that ended on September 30, 2012 stood at $38.7 ‎billion, or 4.6 percent of its gross domestic product (GDP), said Palaniappan Chidambaram, India’s ‎finance minister. He added that exports declined 7.4 percent, while imports fell 4.3 percent ‎during the period, leading to a widening of the trade deficit. Of the imports, gold accounted for  $20.25 billion by value.

‎“Suppose gold imports had been one half of the actual level that would have meant that our ‎foreign exchange reserves would have increased by $10.5 billion,” Chidambaram said. “I would ‎therefore appeal to people to moderate the demand for gold, which leads to large imports of ‎gold.”

‎“We may be left with no choice but to make it a little more expensive to import gold. This ‎matter is under governments consideration,” he warned.

Gold is the biggest contributor to the import bill after crude oil. The government last year ‎doubled the gold import duty to 4 percent in order to discourage gold buying. It achieved some ‎success in curtailing imports as the country’s gold and silver imports declined about 33 percent ‎year on year to $21.3 billion during the April to September period. 

Separately, the Reserve Bank of India (RBI) on Wednesday released the draft report of its working group on gold that suggested several ways to reduce demand, control supplies and  monetize gold  in order to curb  imports.

The report, whose administrators are seeking public comments, suggested measures such as introducing savings ‎schemes and new gold-backed financial products to reduce the demand for physical gold ‎and increasing the import tax on gold. However, it has cautioned that beyond a certain level, raising ‎the import duty may lead to buyers taking recourse to purchases from unauthorized sources.

The RBI panel also recommended reviewing existing restrictions on carrying gold and jewelry ‎by Indians coming from abroad in order to make it a less attractive option, channeling the ‎existing supplies of scrap gold in the country into the financial system and setting up of a ‎bullion corporation, among others.‎
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Tags: Dilipp S Nag, Duty, gold, Import, India, P. Chidambaram, tax
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