The government on Wednesday increased the import duty on gold and silver from 6 per cent to 15 per cent in an attempt to reduce foreign purchase of the metals and ease the pressure on the country’s foreign exchange reserves amid the West Asia crisis.
The higher duty is likely to cut down the demand in India, which is the world’s second-largest consumer of precious metals, and will also help stabilise the rupee and lower the country’s trade deficit.
The Ministry of Finance has updated the customs duty rates for precious metals and related items (findings), effective from May 13. Items made of gold and silver will attract a 5 per cent duty, while those made of platinum will be charged at 5.4 per cent. A 4.35 per cent duty has been levied on spent catalysts made of precious metals, subject to compliance with the required norms.
This is one of the sharpest policy shifts in the precious metal sector in recent years. The move is in response to the government’s increasing concerns about the falling rupee, strain on foreign exchange reserves and rising import bills.
Interestingly, this has come just days after Prime Minister Narendra Modi publicly urged people to cut their spending on non-essential items and avoid purchasing gold for a year in order to maintain foreign exchange reserves.
However, industry officials shared a mixed response to this development.
Sumit Singhania, Research Head, Bajaj Broking, said the measure was aimed at curbing precious metal imports and reducing pressure on the country’s foreign exchange reserves. India continues to remain the world’s second-largest consumer of gold after China, with the demand primarily driven by the jewellery industry.
“Jewellery companies such as Titan Company, Kalyan Jewellers and Sky Gold & Diamonds may face pressure as higher tariffs increase domestic gold prices and could weaken consumer demand, particularly for discretionary purchases like coins, medallions and jewellery,” he said.
In terms of positive impact, Singhania said gold financing firms, including Muthoot Finance and Manappuram Finance, were likely to benefit from higher collateral values of gold loans.
Meanwhile, precious metal futures on the Multi Commodity Exchange of India surged around 6 per cent following the announcement.
