The jewellers and gold merchants, upset by the hike in the import duty of gold and silver, are concerned that it will jack up smuggling and balloon the underground gold trade.
The Union Finance Ministry on Tuesday raised the import duty on gold from 8 per cent to 10 per cent, for the third time in eight months, with a view to bringing down the gold import bill and mopping up additional revenue. India is the world’s largest gold consumer and, after crude oil, gold eats up the largest chunk of the country’s foreign exchange earnings, thus adding to the huge current account deficit.
“Ten per cent is extremely high and the jewellery industry cannot bear such a heavy burden,” B. Girirajan, President of All-Kerala Gold and Silver Merchants Association, told
Girirajan pointed out that at 10 per cent, the gold importers would be paying Rs 2.65 lakh as duty on every 1 kg of gold bar they imported. Currently, this was Rs 2.18 lakh. This would mean that gold smugglers would make a killing of Rs 3.75 lakh on every kg they would be bringing in illegally from other countries.
“The parallel business in gold will flourish; unaccounted jewellery sales will grow; the gold mafia will gain and black marketing will expand.”
This is how M.P. Ahmed, General Secretary of Kerala Jewellers Federation, sees how the hike in import duty will impact the gold business. “The mainstream, legal traders who keep proper accounts will fade away,” he claimed.
Recalling how a sudden spike in gold smuggling ensued in the wake of the last import duty increase — to 8 per cent — Mohammed said the gold black market would balloon this time. “The formal, legal traders are losing the capacity to compete with the parallel gold business, and the industry is going to be wrecked.” VNM Ravi of the Gem and Jewellers’ Federation feels that the duty hike is not going to help ease the current account deficit of the country. “It will only help black marketers,” he said. “Already there is a 12 per cent different between the domestic and international prices.”
The hike in duty is a part of a series of curbs the government introduced in the past few months to discourage gold imports. For instance, three weeks ago, the Reserve Bank had insisted that at least 20 per cent of the gold imported be exported as jewellery.
The latest duty hike is expected to net Rs 4,830 crore for the Government for the rest of the financial year.