Gold prices may rise on high customs duty

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: In a move that could give a fillip to recycling of gold and push up local prices hurting the gems & jewellery industry, the Budget 2009-10 Monday proposed to increase the customs duty on gold bars by Rs 100 per 10 gram and that on other forms of gold by Rs 250 per 10 gram.

The existing customs duty on gold bar was Rs 100 per 10 gram and that on other forms was Rs 250 per 10 gram.

The import duty on silver was also raised by a whopping 100% to Rs 1,000 per kilogram.

“The customs duty on gold and silver had been fixed in 2004 and had not been reviewed ever since, even though gold prices have increased manifold, the proposal (of hiking the customs) will partially restore the incidence,” finance minister Pranab Mukherjee said in his Budget announcement.

Even though, the government raised the customs duty in its bid to match duties with rising prices, but industry players opposed it on the grounds that it will hurt small exporters and also push up local prices leading to less demand during the coming festival season.

“Increase of duty on gold and silver will hurt the domestic gems & jewellery market. This will also have a negative impact on the smaller exporters who procure gold from the market, resulting in additional cost to them,” said Vasant Mehta, chairman of the Gems & Jewellery Export Promotion Council (GJEPC).

Bhargava Vaidya, a well-known bullion analyst said the proposal is in line with the expectations of the bullion trade and will hardly add 1.5% to the value of gold, but the increase in duty on silver is higher than expectation.

India, which is the world’s largest gold consumers, imports more than 95% of its annual requirement, mostly in the form of bars. In the first half of 2009, gold imports slumped to just 60 tonne from around 140 tonne last year, mainly as high prices crippled local demand. Experts feel that with international gold prices showing no sign of falling, local demand would wane if traders decide to pass on the impact of higher customs duty to customers.