The World Gold Council is concerned India’s decision to increase the price of import duties on gold, the second hike this year, will end up curbing supply and increasing smuggling of the precious metal into the country, Bullion Street reports.
“The nature of demand at the retail level is such that restricting supply will not be effective in the long-run,” Somasundaram PR, WGC India’s Managing Director was quoted as saying.
The import tax on refined gold went up 2% to 8% and levies on gold ore and intermediate products climbed to 7% from 5%.
Analysts believe the resolution, announced Wednesday, won’t affect India’s appetite for gold as the shiny yellow metal is at heart of the cultural identity of the nation, used as gift and for saving.
Late last month, the Reserve Bank of India announced restrictions on gold imports on consignment basis, asking jewellers to purchase on direct cash basis.
“While all these efforts of the government aim at reducing gold imports and in turn India's current account deficit, there is certainly going to be some disappointment in the jewellery industry,” says Diamond World magazine in today’s editorial.
“Policy implementation by the government like tax hikes and restrictions do not necessarily always serve in a coordinated fashion to help the industry grow alongside,” it adds.
Indian jewellers went on a 20-day nationwide strike in March 2012 after the government doubled the import tax to 4% and imposed a factory-gate tax on gold jewellery. They resumed business only after authorities revoked the factory-gate tax, a tax charged on a finished product.
India is the world’s largest consumer of gold. The country imported 860 in 2012, and between January and May this year it has already brought in more than 500 tons.