India raises import tax on gold to 12.5% from 7.5% in surprise move
Gold
On Friday, India increasedits basic import duty on gold from 7.5% to 12.5%, Reuters reported quoting the government.
India being the world's second biggest consumer of the precious metal is attemptingto dampen demand and bring down the trade deficit.
The rise in duty would eventually result in a increase in the prices and moderate demand in India, which could weigh on global prices. However, according to officials,it may also stoke under-the-counter buying and increaseappetite for precious metal smuggled into the country.
Reuters quotedmanaging director of RiddiSiddhi Bullions,Prithviraj Kothari, "The sudden rise in prices could bring down jewellery demand this month."
Dealers were offering a discount of up to $40 an ounce over official domestic prices after the duty hike, which includes12.5% import and 3% sales levies.While global gold prices fell 0.5% after the duty hike,local gold prices rose around 3%.
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India's May trade deficit widened from $6.53 billion a year ago to $24.29 billion currently, given the surge in gold imports in the monthfrom 678 milliona year ago to $6 billion.
Secretary at the India Bullion and Jewellers Association (IBJA),Surendra Mehta claimed that forthe short-term gold demand could decrease but in the long run demand would remain strong and imports would rebound.
India'sgold demand is mainly fulfilled byimports, which have been putting a pressure on the rupee hitting a record low earlier on Friday.
A Mumbai-based dealer with a global trading firm claimed that thehike has raised the gap between local and overseas prices to nearly15% which can boost smuggling of gold in the country.
Smuggling was falling after the duty reduction and because of COVID-19 curbs on movement of people. But now it could rise again," the dealer added.
In weak Mumbai market the shares of jewellery makers such as Titan Kalyan Jewellers and Tribhovandas Bhimji Zaveri were down by close to4%.
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