The Government on Wednesday hiked the import duty on gold to eight per cent, up by two percentage points. This is aimed at reining in demand and relieving the huge pressure on the current account deficit (CAD) created by spiralling imports.

“The import duty on gold has been increased from 6 per cent to 8 per cent,” said Revenue Secretary Sumit Bose.

This is the second hike in six months as gold imports touched an alarming 162 tonnes in May.

The imports hit a staggering figure of $15 billion in the last two months.

The hike is aimed at curbing the import of gold, which is mainly responsible for the rise in CAD, impacting on the country’s foreign exchange reserves as well as the rupee value.

The CAD, which is the difference between inflow and outflow of foreign currency, touched a historic high of 6.7 of GDP in the quarter ending December 2012.

It is likely to have reached about five per cent during 2012-13, much above the RBI’s comfort level of 2.5 per cent.

Worried over the deteriorating CAD position, the government had, in January, increased the import duty on gold from four per cent to six per cent.

The Finance Ministry’s action to raise duty follows curbs announced by the RBI on import of gold by banks as well as other entities. Buoyed by a firm global trend, the price of gold for jewellery rose to Rs 27,105 per 10 gm on Wednesday.

The issue of surging gold imports figured prominently in the Financial Stability Development Council (FSDC), chaired by Finance Minister P. Chidambaram and attended by all regulators including RBI Governor D. Subbarao on Monday.

Earlier in the week, Commerce and Industry Minister Anand Sharma had advocated that gold import should be only for actual usage and not for trading purposes.

Department of Economic Affairs Secretary Arvind Mayaram too had recently indicated that more steps were in the offing to reduce gold imports.

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