RBI may seek heavy duty on gold imports

In the past three years, high gold imports have accounted for over two-thirds of India’s current account deficit

The Reserve Bank of India is rooting for imposition of a heavy import duty on gold in Budget 2013-14, a source told NewsWire18. The purported move comes as the current account deficit has hit a record high, primarily due to heavy gold and silver imports.

“RBI wants a clampdown on gold imports,” said an official, on the condition of anonymity. “It has intimated the government that the duty amount should be significant and the government should make gold imports difficult.”

In January 2012, India changed the duty structure for gold to advalorem from fixed by imposing a two per cent import duty. In less than two months, the levy was doubled to four per cent in Budget 2012-13. Excise duty on branded and non-branded jewellery was also introduced in the Budget but later rolled back, amid protests by jewellers. “Duty should be at least another four per cent on the value of imports or even more. Then only we can see sharp decline in gold imports and the current account deficit declining,” said the official.

 

Without gold and crude oil imports, India would be a current account surplus nation, he said.

In July-September, the country’s current account deficit rose to an all-time high of 5.4 per cent of gross domestic product from 4.2 per cent a year ago, according to data released by RBI on Monday.

India’s current account deficit had improved to 3.9 per cent in April-Jun after touching 4.5 per cent in January-March.

In value terms, current account deficit was $22.3 billion in July-September compared with $18.9 billion a year ago and $16.4 billion in April-June. In the past three years, high gold imports have accounted for two-third of India’s current account deficit, RBI had said in its Financial Stability Report released on Friday.

The central bank said the hike in duty on gold imports seemed to have dampened demand for the yellow metal in April-June. However, demand picked up in July-September and was higher than the average for the quarter in the past five years. Demand increased in July-September, ahead of the festivals season.