India Hikes Duty on Imported Gold, Seeking to Bring Down Trade Deficit

By | July 6, 2022

In its attempt to relieve the pressure against the rupee, the Indian government announced on July 1 that it had hiked the duty on imported gold by five percentage points to 12.5%. However, there are fears the import duty hike will spur a resurgence in the smuggling of the commodity.

India’s Worsening Trade Deficit

Faced with a rising trade deficit and weakening local currency, the Indian government announced on July 1 that it was hiking the duty on imported gold from 7.5% to 12.5%. Immediately after the announcement, the precious metal’s price in India went up by 3%.

According to a report, the latest data from the country shows that imports of the precious metal into India — the world’s second largest consumer of gold — grew by almost ten times in twelve months to $6 billion. During the same period (May 2021 to May 2022), India’s negative trade balance grew to $24.29 billion, up from the $6.53 billion that was recorded a year ago.

Following the announcement, some Indian experts lauded the decision which they say will dampen demand for the precious metal. However, an unnamed dealer is quoted in the report suggesting that the hike will likely encourage the smuggling of the commodity. The dealer is quoted as saying:

Gold smuggling was falling after the duty reduction and because of COVID-19 curbs on [the] movement of people. But now it could rise again.

Rupee Decline

Meanwhile, another expert, Somasundaram PR, a regional CEO of the World Gold Council’s Indian operations, concurred with experts who assert that the hike will help reduce demand for gold and thus ease the pressure on the rupee. Surendra Mehta, a secretary at India Bullion and Jewellers Association (IBJA), is quoted in the same report predicting that the demand for the precious metal will rebound.

See also  Zimbabwe to Hike Benchmark Rate to 200%, Central Bank Minted Gold Coins to Act as Store of Value

According to the report, the announcement by the Narendra Modi government came just as reports emerged that the Indian rupee had breached the 79 mark against the U.S. dollar for the first time. At the time of writing, the rupee-dollar exchange rate stands at 79.09.

Tags in this story

What are your thoughts on this story? Let us know what you think in the comments section below.

Terence Zimwara

Terence Zimwara is a Zimbabwe award-winning journalist, author and writer. He has written extensively about the economic troubles of some African countries as well as how digital currencies can provide Africans with an escape route.









Image Credits: Shutterstock, Pixabay, Wiki Commons

Disclaimer: This article is for informational purposes only. It is not a direct offer or solicitation of an offer to buy or sell, or a recommendation or endorsement of any products, services, or companies. Jcquirin.com does not provide investment, tax, legal, or accounting advice. Neither the company nor the author is responsible, directly or indirectly, for any damage or loss caused or alleged to be caused by or in connection with the use of or reliance on any content, goods or services mentioned in this article.

Read disclaimer