India considers 2% cut in gold import duty

India is considering pruning its gold import duty by 2% from the current rate of 10%, in view of demands from the jewellery industry and an increase in gold smuggling. According to officials in the Finance Ministry, the case for reduction of import duty has been finalised but a final decision would be taken closer to end of current fiscal on March 31, 2014, as stated by Finance Minister Palaniappan Chidambaram. However, the ministry was yet to take a final view of the jewellery industry’s demand for quantitative easing of gold imports, the officials added. The current quantitative restriction was 80:20 or merchant importers were mandatorily required to re-export 20% of each inward shipment of gold before being able to place order for a fresh consignment. In an interview with the local media, Chidambaram on Wednesday said that while the higher import duty and quantitative restrictions were significant contributors in reining in the current account deficit (CAD) of the India, it has also triggered a spurt in gold smuggling, which he pegged at around 3 tons per month. The improvement in CAD was reflected in recent data released by the government which estimated the CAD during July to October 2013 at US$5.2 billion (N$58.2 billion) or 1.2% of the gross domestic product (GDP) compared to 6% of GDP during 2012. However differences persisted between the government and the central bank, Reserve Bank of India (RBI) on the prudency of easing gold import restrictions. Commerce Minister Anand Sharma has made a strong plea of easing fiscal and quantitative restrictions in interest of keeping the gems and jewellery industry competitive in the exports markets. He said that while the government had by and large gone along with moves of the revenue department under the finance ministry and RBI on the issue, it was also the responsibility of the government in ensuring the competitiveness of the labour intensive and export oriented gems and jewellery industry. However, the deputy governor of RBI, KC Chakrabarty, has cautioned that India could not afford to continue to pay foreign currency for importing gold or borrow money from banks to import gold when the CAD continued to be negative.