Connect with us

Daily News

Gold import duty can be hiked 3% to rein in CAD




A bid to pare non-essential imports to contain current account deficit (CAD) can boost import duty on gold by 2-3 per cent from 10 per cent and give a fillip to investment in sovereign gold bonds in place of physical demand in India.

“The best option for government in the present scenario is to increase the import duty on gold by 2 per cent. The additional duty of 2 per cent collected on physical gold can be utilised to repay sovereign gold bond on maturity to incentivise customers who have invested in gold bonds. By doing so, investment demand for gold will shift to sovereign gold bond,” said Surendra Mehta, national secretary, India Bullion & Jewellers Association (IBJA).

While industry watchers feel the reintroduction of Prevention of Money Laundering Act (PMLA) for gold could check gold demand, bullion dealers and jewellers feel that with elections around the corner, the government may not introduce it and this could affect gold demand in the upcoming festival season.

The PMLA guidelines, which required jewellers to keep records of customers’ Permanent Account Number for transactions above Rupees 50,000, had a drastic effect on gold sales last year as buyers were hesitant to provide the PAN details.

Gold traders like Ketan Shroff, managing director, Penta Gold, a company listed on NSE’s SME segment, said the government could consider allowing all gold imports against letters of credit rather than on consignment basis as a method for deferred dollar payments. “The government could probably increase import duty by 2-3 odd percent but I think an expedient way to stem dollar outflow until a more lasting solution is found is for gold imports against SBLCs (standby letter of credits)/ LCs of six months to one year duration rather than on consignment basis through banks, where immediate dollar payments are made,” Shroff said.

Through such documentary credit, the gold supplier’s bank discounts the LC provided by the buyer’s bank at Libor plus 1 per cent. After six months or a year, the supplier’s bank receives payment from the buyer through his/her bank. This defers the outflow of dollars which currently happens under the consignment route where the nominated bank collects money upfront from the buyer and remits it to the supplier – bullion bank – for a fee.

However, Shekhar Bhandari, business head (global transaction banking & precious metals) at Kotak Mahindra Bank said a more optimal solution rather than changing the format of payment or raising import duty from 10 per cent would be rationalising the duty structure on raw gold or dore, which he says makes up 55 per cent of the gold India imports. The duty on dore is 9.35 per cent against 10 per cent on bullion bars imported by banks on consignment basis. Cheaper gold increases demand and this in turn widens the CAD. He said duty on dore should be brought on a par with that on direct imports to reduce pressure on CAD.

[/vc_column_text][/vc_column][/vc_row][vc_row][vc_column][vc_single_image image=”5274″ img_size=”full” alignment=”center”][/vc_column][/vc_row][vc_row][vc_column][vc_column_text]Courtesy: Retail Jeweller India News Service[/vc_column_text][/vc_column][/vc_row]

Continue Reading

Latest News