Commerce ministry wants steep cut in gold import duty

The ministry is keen on a duty cut to help local jewellery makers source cheaper supplies

The Union commerce ministry on Tuesday batted for steep cut in import duty from 10 per cent to two per cent, but any immediate step to make this change effective might not be possible in the short run, according to the finance ministry.

The government had raised the import duty on gold to 10 per cent after ballooning imports of the yellow metal pushed up the current account deficit (CAD) to 4.8 per cent of GDP in 2012-13 from 4.3 per cent in the previous financial year. CAD since then fell to 1.7 per cent in 2013-14 and 1.3 per cent in 2014-15. In the first quarter of FY16, CAD narrowed to 1.2 per cent from 1.6 per cent a year ago.

Aided by comfortable CAD situation, the commerce ministry is keen on a duty cut for both gold to help local jewellery makers source cheaper supplies, sources in the ministry said. The ministry has communicated its proposal to the finance ministry, sources said.

It has also argued that a high import duty was not required since import levels have come down. Government data suggest the country's gold imports reduced to almost half in September this year to $2 billion, as against $3.783 billion in the year-ago period.

A senior official at the finance ministry said he was not aware of the move. Another official ruled out the possibility of a cut in the immediate future.

Meanwhile, gold prices dropped to the lowest level since early October at the domestic bullion market in Mumbai on Tuesday due to subdued demand from jewellery stockists and retailers as well as poor local buying interest at existing levels.

Standard gold (99.5 purity) slipped by Rs 115 to end at Rs 26,275 per 10 grams from overnight close of Rs 26,390.

On the global front, the yellow-metal continued to languish near 4-week low on speculation that the Federal Reserve would raise interest rates at its next meeting in December.