Alarmed by the widening current account deficit — fuelled, in large measure, by rising gold demand met through imports — the Finance Ministry announced a series of steps aimed at discouraging the purchase of physical gold
The measures are also meant to unlock supplies locked up in gold exchange traded funds. While buying gold and platinum will become costlier, depositing gold with banks could prove rewarding.
Mutual funds will also have the freedom to unfreeze their underlying gold in Gold Exchange Traded Funds (GETFs).
The government has decided to increase the import duty on gold and platinum from 4 per cent to 6 per cent with immediate effect, a senior Ministry official said on Monday.
“Consequent changes in additional Customs duty and excise duty will be carried out in the notifications dealing with the import duty/excise duty on gold-ore bars, gold ore and refined gold,” Economic Affairs Secretary Arvind Mayaram announced at a press conference.
The duties will be reviewed after some time if there is a moderation in the quantity of gold imported, he added.
The gold price on the Multi Commodity Exchange rose as much as 0.9 per cent to Rs 30,847 for 10 gms after the announcement, before slipping to Rs 30,754.
Value of imports
In April-December of this fiscal, gold worth $38 billion was imported. For the full year 2011-12, gold import amounted to $56.5 billion, accounting for almost half the current account deficit.
The move follows Finance Minister P. Chidambaram’s January 2 statement that the government “might be left with no choice but to make it a little more expensive to import gold.” On the same day, a working group of the Reserve Bank of India also suggested that fiscal measures to reduce the gold imports “be revisited.”
The latest hike is second for the current fiscal. Earlier, the duty was raised in the Budget from 2 per cent to 4 per cent.
Also, effective April 18, the limit on the quantity of gold that returning overseas travellers could bring in with their baggage at a concessional rate was cut from 10 kg to 1 kg.
The measures led to a contraction in gold imports (in value terms) by nearly 24 per cent during April-October. However, gold smuggling is rising. Gold seized by the Customs at international borders during April-October 2012-13 rose to Rs 50.02 crore worth from Rs 15.81 crore (in April-October, 2011-12). The Finance Ministry also announced the relaxing of norms for gold deposits offered by various banks.
Other measures
“The minimum quantity of gold that may be deposited will be reduced and the minimum tenure of deposit will be reduced to six months (from the current three years),” Mayaram added. The RBI will notify the changes soon.
The Government also proposes to provide a link between Gold ETFs (Exchange Traded Funds) and the Gold Deposit Scheme.
“The objective is to unfreeze or release a part of the gold physically held by mutual funds under Gold ETFs and enable them to deposit the gold with banks under the Gold Deposit Scheme,” Mayaram said.
The advantage will be that a part of the gold lying in stock will be brought into circulation and will partially meet the requirements of the gems and jewellery trade. SEBI will notify the changes shortly.
“It will help a mutual fund company to lower the cost and, at the same time, it will help in getting additional revenue by way of interest from bank. However, there is nothing for investors” Value Research’s CEO Dhirendra Kumar said.