Bringing cheer to consumers, Finance Minister Nirmala Sitharaman has announced an import duty cut on gold, silver and platinum. The total duty has been revised down to 6 per cent from the earlier 15 per cent effective July 24. For platinum, it has been revised down to 6.4 per cent from the current 15.4 per cent.

For gold and silver, the 6 per cent duty includes the Basic Customs Duty (BCD) of 5 per cent and Agriculture Infrastructure and Development Cess (AIDC) of 1 per cent, which were 10 per cent and 5 per cent respectively earlier. For platinum, BCD is cut to 5 per cent and AIDC to 1.4 per cent from 10 and 5.4 per cent, respectively.

This is expected to bring down the prices of precious metals in the domestic market. Reflecting the impact, the price of gold futures has dropped 5.7 per cent to ₹68,600 (per 10 gram); silver futures, too, lost 4.7 per cent to about ₹85,000 (per kg) in Tuesday evening trade on MCX. This is as compared to their price in dollar terms remaining largely unchanged.

Consumers and companies to benefit

For jewellery, including the GST of 3 per cent, the total tax stood at about 18 per cent. This has been halved to 9 per cent now, which could boost jewellery demand. India is the second largest consumer of gold after China. According to the World Gold Council (WGC), Indians bought 576 tonnes of jewellery and 185 tonnes in the form of bars and coins in calendar year 2023.

The timing of the cut could not have been better as we approach the festive season. The price of 24 carat gold in Mumbai stood at ₹7,180 per gram on Tuesday. Market experts believe the price could drop between ₹300 and ₹500 per gram going ahead. Consequently, purchases that have been postponed of late due to higher prices, are expected to hit the market in the coming months.

While consumers are being rewarded, the companies are also set to benefit as lower prices can increase their topline, with volume growth to more than offset the decline in prices. Reflecting the potential benefit of increased revenue and profits, the stocks of listed jewellers such as Titan Company, Kalyan Jewellers India and Senco Gold appreciated 6.6, 4.5 and 4.8 per cent, respectively. While the existing inventory of jewellers may take a one-time hit, markets tend to ignore one-time factors. The growing share of organised players in the industry is also expected to help these companies.

The additional benefit is that gold smuggling could decrease as the price in the mainstream market is set to be competitive.

On the other hand, increased demand can lead to higher imports of gold, which is the third largest component in India’s import basket. This is not good news for the Indian rupee, which is hovering near an all-time low against the dollar. According to the Reserve Bank of India data, on average, India imports gold worth $36 billion a year, constituting about 8 per cent of total imports.

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