the government hiked the import duty on gold to 12.5 percent from 10 percent. The move took the market by surprise, as everyone was demanding a duty cut to support the domestic gems and India’s gold
At present, the consumer has to pay a 3 percent goods and services tax (GST) on gold value and a 5 percent GST on making charges, in addition to a 12.5 percent import duty. This has hit the jewellery industry hard, which has already been dealt a blow by the coronavirus outbreak.
Image12312021Source: WGC and Abans Research (Gold imports in tons, net import includes import of Gold Dore)
The impact of the hike in import duty and coronavirus pandemic are clearly seen on India’s gold imports. India’s gold imports in 2020 slumped to their lowest in more than a decade. The duty and the coronavirus pandemic have battered demand and logistics.
As the Indian economy is still recovering from the COVID-19 shock, all eyes will now be on Finance Minister Nirmala Sitharaman, who will present the Union Budget on February
It is observed from the trading sentiments that the market is anticipating a hike in the import duty on gold, as MCX prices were trading at a premium of 0.50 percent to 1 percent during the week in anticipation. We do not believe that the government will hike import duty, here are the reasons why:
1) Current account under control
While increasing import duty on non-essential items, the government typically wants to control a rise in the current account deficit (CAD). India’s current account recorded a surplus of $15.5 billion in September 2020, compared with a surplus of $19.2 billion in the previous quarter. The data reached an all-time high of $19.2 billion in June 2020, from a record low of $-31.9 billion in December 2012. The current account situation is in a much better position and there is no need to hike the duty on gold.