India raises import tax on gold to 12.5% from 7.5% (updated)

Tribhovandas Bhimji Zaveri

01/07/2022 07:43

(Adds industry comments)
    By Rajendra Jadhav
    MUMBAI, July 1 (Reuters) - India has raised its basic import
duty on gold to 12.5% from 7.5%, the government said on Friday,
as the world's second biggest consumer of the precious metal
tries to dampen its demand and bring down the trade deficit.
    India fulfils most of its gold demand through imports, which
were putting pressure on the rupee  INR=IN  that hit a record
low earlier on Friday.
    The duty hike would lift prices and moderate demand in
India, which could weigh on global prices  XAU= . But it could
stoke under-the-counter buying and drive-up appetite for
precious metal smuggled into the country, trade officials said.
    "The sudden rise in prices could bring down jewellery demand
this month," said Prithviraj Kothari, managing director of
RiddiSiddhi Bullions.
    After the duty hike, dealers were offering a discount of up
to $40 an ounce over official domestic prices — inclusive of the
12.5% import and 3% sales levies.
    India's May trade deficit widened to $24.29 billion from
$6.53 billion a year ago as gold imports in the month surged to
$6 billion from 678 million a year ago.  urn:newsml:reuters.com:*:nD8N2XO00W
    In the short-term gold demand could fall but in the long run
demand would remain strong and imports would rebound, said
Surendra Mehta, secretary at the India Bullion and Jewellers
Association (IBJA).
    After the duty announcement, local gold prices  MAUc1  rose
around 3%, while global prices fell 0.5%.
    The hike has raised the gap between local and overseas
prices to more than 15% and this could boost smuggling of gold
in the country, said a Mumbai-based dealer with a global trading
firm.
    "Smuggling was falling after the duty reduction and because
of COVID-19 curbs on movement of people. But now it could rise
again," the dealer said.
    Shares of jewellery makers such as Titan  TITN.NS  Kalyan
Jewellers  KALN.NS  and Tribhovandas Bhimji Zaveri  TBZL.NS 
were down as much as 4% in weak Mumbai market  .NSEI . 

 (Reporting by Rajendra Jadhav; Editing by Muralikumar
Anantharaman and Stephen Coates)
 ((rajendra.jadhav@thomsonreuters.com; +91-22-68414378 ; Reuters
Messaging: rajendra.jadhav.thomsonreuters.com@reuters.net))