In its effort to relieve pressure against the rupee, the Indian government on July 1 announced that it had raised the duty on imported gold by five percentage points to 12.5 per cent. However, there are apprehensions that the increase in import duty will lead to a resurgence in smuggling of the commodity.
India’s worsening trade deficit
Faced with a growing trade deficit and a weak local currency, the Indian government announced on July 1 that it was raising the duty on imported gold from 7.5% to 12.5%. Soon after the announcement, the price of the precious metal in India rose 3%.
According to a report, the country’s latest data shows that imports of the precious metal into India – the world’s second largest consumer of gold – increased nearly ten-fold to $6 billion in twelve months. During the same period (May 2021 to May 2022), India’s negative trade balance increased to $24.29 billion, up from $6.53 billion recorded a year ago.
Following the announcement, some Indian experts lauded the decision, which they say will reduce demand for the precious metal. However, the report quoted an unnamed dealer as saying that the hike is likely to encourage smuggling of the commodity. The dealer is quoted as saying:
Gold smuggling was falling after duty reduction and due to COVID-19 restrictions [the] movement of people. But now it may rise again.
Meanwhile, another expert, Somasundaram PR, a regional CEO of the World Gold Council’s Indian operations, concurred with the experts, who insist that the hike will help dampen the demand for gold. And thus the pressure on the rupee will ease. Surendra Mehta, a secretary of the India Bullion and Jewelers Association (IBJA), predicted in the same report that demand for the precious metal would pick up again.
According to the report, this announcement was made by the Narendra Modi government after reports emerged that the Indian rupee had crossed the 79 mark against the US dollar for the first time. At the time of writing, the rupee-dollar exchange rate stands at 79.09.
What are your thoughts on this story? Tell us what you think in the comment section below.
image credit: Shutterstock, Pixabay, WikiCommons
Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation or recommendation or endorsement of an offer to buy or sell any products, services, or companies. Bitcoin.com does not provide investment, tax, legal, or accounting advice. Neither the Company nor the author is responsible, directly or indirectly, for any damage or loss alleged to be caused by or in connection with the use or reliance on any content, goods or services mentioned in this article.