India decided to tighten its grip on the country’s gold and silver trade once again, announcing Friday a hike in the import tariff value of gold to $424 per 10 grams of bullion and $650 per kg of silver, Zee News India reports.
The import tariff value —base price at which customs duty is determined to prevent under-invoicing— is reviewed on a fortnightly basis, taking into account the volatility in global prices.
The Reserve Bank of India (RBI) has been imposing lately several restrictions on gold imports in an attempt to curb demand for the precious metal and reduce the country’s current account deficit.
But the deficit is narrowing fast, according to a report published by the International Monetary Fund (IMF) this month.
“India’s external vulnerabilities have fallen significantly in recent months, helped by policy actions taken to shrink the current account and strengthen capital flows.”
The IMF expects India’s current account deficit to fall to around 3.3% of GDP this fiscal year.
The government’s measures to reduce gold imports – which include import duties of 10% and the 80:20 rule – seem to have worked.
India, which lost its position as the world’s top consumer of gold to China last year, imports about 963 tonnes of the precious metal each year. But these official figures are only half the story: The Indian gold market has a number of alternative sources for obtaining the coveted metal.
Gold smuggling into India has increased dramatically since the nation hiked its import duty on the yellow metal from 4% to 15% last year, with the customs department at the Delhi airport saying it seized 352kg of gold by the end of 2013, 52 times more than the previous year.
Although it’s impossible to calculate exactly how much gold was smuggled into the country in response to import restrictions, the Indian Finance Minister estimates that these activities may have added between one and three tonnes per month in the second half of 2013. The World Gold Council believes this could be a considerable underestimate and that smuggling could have added as much as 200 tonnes throughout the year.