Gold Set To Become Costlier As Govt Raises Import Duty To 12%. Here’s Why

India's gold purchase had grown in the past year after buying slumped during the pandemic with the country importing most gold in a decade in 2021, according to the World Gold Council.

The World Gold Council said India's gold purchase had grown in the past year after buying slumped during the pandemic with the country importing most gold in a decade in 2021.

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India has raised its basic import duty on gold to 12.5 per cent from 7.5 per cent, the government said in a notification on Thursday, reported news agency Bloomberg. The import tax on gold has been raised with an aim to bring down inflows to the world’s second-largest consumer, after the country’s ballooning trade gap pushed its currency to a record low. The move is a reverse trend when India lowered the tax to 7.5 per cent in the Budget last year. The duty on gold was 12.5 per cent before the tax reduction. 

What’s the reason behind the rise on gold import duty?

The development comes amid the shortfall in India’s current account, the broadest measure of trade, is expected to probably widen to 2.9 per cent of gross domestic product in the fiscal year ending March 31, according to a Bloomberg survey in late June.

The level would be almost double the level seen in the previous year, as per the survey.

India's gold purchase had grown in the past year after buying slumped during the pandemic with the country importing most gold in a decade in 2021, according to the World Gold Council. In May, a total of 107 tonne of gold was imported and in June also the imports were significant. 

Gold is considered auspicious and a store of value but India relies entirely on imports to meet its growing demandwhich were putting pressure on the rupee that hit a record low earlier this week. The gold import increases US dollar demand ultimately weakening Indian rupee.

This hike in import duty comes as a report by the World Gold Council (WGC) said that India is the fourth-largest nation in terms of gold recycling country in 2021 as it recycled 75 tons, or 6.5 per cent of the total gold recycled across the globe.

Now with 5 per cent rise in import duty, the total levy on gold would stand at 15.75 per cent. Experts believe that the current hike will make gold more expensive at domestic levels and consumer will have to pay higher prices.“The government has taken this step to curb the import and maintain balance in import-export basket,” Anuj Gupta, vice-president, IIFL Securities, has been quoted in the FinancialExpress.com.