Ministries at odds over gold import duty

By Krishna N. Das

NEW DELHI (Reuters) - India's trade ministry has proposed cutting the import duty on gold to 2 percent from 10 percent, according to a government note, but a finance ministry official said it was unlikely to go through.

Huge gold imports pushed India's current account deficit to a record $190 billion in 2013, prompting the government to raise its duty on imports to 10 percent, an all-time high.

Imports have since come down sharply and the government of Prime Minister Narendra Modi will on Thursday launch a plan to further cut purchases by mobilising tonnes of the metal stored privately. To lower physical demand, India will also launch a sovereign gold bond.

The trade ministry is keen on a duty cut for both gold and silver to help local jewelry makers source cheaper supplies, according to the note calling a meeting between trade and finance ministry officials.

A finance ministry official, however, said there was no immediate possibility of a cut.

"It will be counter-productive if the duty is cut," said the official, who declined to be named. "The government will see if the schemes work and then take a decision. But nothing will be done immediately".

India is aiming to tap an estimated pool of 20,000 tonnes of gold lying idle in homes and temples and release it into the banking system through a monetisation scheme, and reduce investment demand for physical bars and coins through the bond scheme.

"If the duty is reduced by 8 percent, why would any individual invest in the bond programme or subscribe to the gold monetisation scheme?," said Sudheesh Nambiath, lead analyst at GFMS, the metals research and forecasts team in Thomson Reuters.

"I am sure the finance ministry, which is very keen to get the schemes rolled out, will keep that in mind before a duty cut decision."

(Reporting by Krishna N. Das; Additional reporting by A. Ananthalakshmi in SINGAPORE, editing by William Hardy)