The government raised import duty on gold and silver exorbitantly to curb import of precious metals translating thereby huge outflow of dollar outside India.
In a rare decision, the government raised import duty to an ad valorem 2% from the existing Rs 300 per 10 grams while the same on silver was raised to 6% from the prevailing Rs 1500 a kg.
The import duty on gold comes to around Rs 540 per 10 grams now considering the base price of Rs 27,000 per 10 grams.Similarly, in silver total duty works out to nearly Rs 3,120 a kg considering the base price of Rs 52,000 .
“This will have no major impact on consumption pattern in India considering people’s inherent passion towards the precious metals,’ said Suresh Hundia, one of India’s largest bullion importers.
When presenting the Budget 2009-10, Finance Minister Pranab Mukherjee had increased import duty on gold bars from Rs 100 per 10 gram to Rs 200 per 10 gram, while duty on other forms of gold (excluding jewellery) was increased from Rs 250 per 10 gram to Rs 500 per 10 gram.
The customs duty on silver was increased from Rs 500 per kg to Rs 1,000 per kg. The duty on gold and silver was not been reviewed since 2004 even though prices have increased manifold, the finance minister then said.
Further in 2010 annual budget, the government increased the import duty on gold for the second time to Rs 300 per 10 grams from Rs 200 earlier, and import duty on gold raised to Rs 1,500 per kg from Rs 1,000 earlier.
Earlier Ajay Mitra, managing director, Middle East & India, WGC, the market development organisation of the gold industry, had forecast while uneviling the third quarter gold demand trend in November last year that "the government could raise the import duty on gold in the budget for FY12 since high prices did not deter consumers from making a record purchase of 745.7 tonne jewellery last year.
"The high demand resulted in the country importing 918 tonne, the highest in a year so far. However, I don't see demand being hit since the duty calculated on a per gram basis works out to just Rs 300. As a result, the demand for gold bars, jewellery and coins will not be affected due to the increase in import duty. However, this trend will help the government to earn additional revenues by increasing the import duty."
According to estimates of WGC, Indian government earned around Rs 2,836.6 crore in 2010 as an import duty on gold. In 2010, the import duty stood at Rs 30,900 per kg. In 2010, Indian consumers consumed approximately 963.1 tonne of gold prized at Rs 1.73 lakh crore, representing a YoY growth of around 66%.
Meanwhile, Rajiv Jain, chairman of the Gems & Jewellery Export Promotion Council (GJEPC) termed the decision as industry unfriendly.
“It is a bad news for us,” he added.