India considers lowering gold import duties

The Government of India is considering lifting the import duty on goldlower, after imports of the precious metal had fallen to new lows. India imposes a 10% import duty on the precious metal to discourage gold buying, but is said to be planning to reduce that tax to 4%."A working group has been formed that will study the current policy on gold"Saurabh Garg of India's Ministry of Economy said in a conversation with several economists organised by the India Gold Policy Centre (IGPC).

In 2013, India raised the import duty to 10%, as imports of the precious metal caused a structural deficit in its balance of payments. In the 2012-2013 financial year, the balance of payments deficit rose to 4.8% of GDP. According to Arvind Sahay of the India Gold Policy Centre , raising the import duty to 10 per cent was a cause for concern from the start. "The high import tariffs have  probably not only caused  the decline in consumer demand for gold, it is also responsible for a large part of the gold smuggling in India."

Indian Gold Market

India is the second largest buyer of physical gold in the world after China. In recent years , the country has imported almost 1,000 tonnes of gold on an annual basis, which is mainly processed into jewellery. Many Indians are employed in the jewellery industry and have experienced the negative consequences of government policy in recent years. The high import duty makes the precious metal more expensive, which means that consumers are less Buy gold.

According to Thomson Reuters GFMS figures, India imported just 30 tonnes of gold in September, down 43% from a year earlier. In the first nine months of this year, the world's second-largest gold market imported just 268.9 tonnes, down 59% from the same period last year. It is not clear how much is imported in total, because illegal smuggling remains invisible in the statistics.

"There was little activity among importers, because the precious metal was traded at a large discount to the gold price"Prakash Rathod of India's MNC Bullion told Reuters. "Jewellers were working with smaller inventories due to weak consumer demand."  Gold traders offered discounts of up to $32 per troy ounce compared to the international Gold price, as there is relatively little demand for the precious metal.

Gold prices rose to 32,455 rupees per 10 grams in July, the highest level in three years. Many consumers are waiting for a more favorable price and therefore postpone purchases. Still, according to a Mumbai-based banker, India's gold market may pick up again later this year:"In the coming weeks, gold may be trading at a premium to gold prices again because of the festival season."

India considers lowering gold import duties