Govt unlikely to alter gold import duty in Budget

The government is unlikely to tinker with the import duty on gold in the Union Budget due on February 28 because a lower tariff has helped more than halve smuggling of the metal, traders and analysts said on Monday.

"An increase in import duty on gold will perpetuate smuggling and, given the higher level of the country's fiscal deficit, I don't think the government will reduce the duty," Sanjay Gupta, executive director of Agee Gold Refiners said.

"I don't think the government is going to change any policy related to gold," Mukul Sonawala, president of the Bombay Bullion Association, said.

The government lowered the duty on gold imports to Rs 250 per 10 grams in February 2001 from Rs 400 in an effort to discourage smuggling and illegal trading of the metal in the world's largest gold consuming nation.

"The lower duty has certainly brought down smuggling. So, I expect the government to maintain a status quo as far as duty is concerned," said Madhusudan Daga, a Mumbai-based bullion analyst.

He estimated the amount of smuggled gold fell to 70 tonnes in 2001 from about 140 tonnes in 2000.

According to the industry-funded World Gold Council, gold imports into India rose to 359.3 tonnes in the first half of 2001 from 267.7 in the corresponding period a year earlier.

"This rise in imports is mainly due to the cut in duty besides the surge in demand," said a bullion dealer in Ahmedabad.

Higher import duties and an endless appetite for the metal had prompted large-scale smuggling into India through Nepal and the Middle East.

DEMAND TO RISE

Traders and gold refiners said the government should reduce customs duty on imports of gold concentrate and ore to boost domestic refining capacity.

"There is a need to encourage refining locally. This can be done only by lowering the tariff to provide incentive to refiners," Daga said.

India levies a five per cent duty on gold concentrate and ore imports and traders say unless it is abolished or brought down to a minimum of two per cent refining will not be viable.

The roughly 6.2 per cent duty on refined gold has discouraged concentrate imports, said a Mumbai-based refiner.

Refiners in India currently recycle old jewellery and scrap. "Lower duty on scrap would be an attractive proposition for refiners," Gupta said.

Traders said demand for gold was likely to pick up in the short term due to the wedding season and stability in international prices.

"I see demand picking up shortly. Old stocks with traders and investors have been liquidated," said Gupta.

Gold imports into India came to a standstill last week after prices breached the $300 per troy ounce mark and rose to two-year highs.

Spot gold was trading at $298.10/8.60 an ounce on Monday afternoon in Asia, down from the Hong Kong open at $298.25/9.00 and New York's last indicated $297.60/8.60.

"Indians should be shortly resuming imports. Demand is certain to pick up now," said Sonawala.

Reuters

YOU MAY ALSO WANT TO READ:
The Rediff Budget Special
Run-Up To The Budget
Money