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Bullion body, World Gold Council denounce gold import duty hike

The central government's decision to increase the import duty on gold by 60 per cent from Rs 250 per 10 gm to Rs 400 per 10 gm has drawn flak from bullion market bigwigs and the World Gold Council.

Bombay Bullion Association president M L Damani said that the import duty hike is a disturbing trend for the business volume of gold in the country and would encourage smuggling and hawala activities.

''There is a chance of under-invoicing or over-invoicing by traders. The local business would decline and official imports would reduce by 15 per cent per annum. However, gold prices would fluctuate depending upon international trends. The price difference between the overseas and domestic market prices, which was 7 per cent before the hike is likely to reach 12 per cent,'' he said.

In a statement, financial institutions manager of the WGC Derrick Machado critisised the hike saying that it would retard the progress made towards a more liberalised gold policy.

''The repercussions will be a reduction of gold inflows through the official channels and a likely increase in smuggling of gold as the latter becomes a lucrative proposition with the differential between gold prices in the Indian and international markets increasing to 9.5 per cent at current prices,'' said Machado.

Yesterday, the government increased customs duty on gold from Rs 250 per 10 grams to Rs 400 per 10 grams effective from January 5, 1999. Gold imports were projected at $ 7 bn by 1998-99 end.

It was said gold imports were dangerously close, in terms of worth, to oil imports at $7.5 bn.

It was said the government hiked the import rate after fears heightened that the high import level of gold may further widen the current trade deficit of about $ 6 bn, leading to flight of precious dollars.

However, a counter argument was doing the rounds that part of the gold imports is by were by the Non Resident Indians which won't adversely affect the dollar position.

Bullion market sources said even the RBI holds thes view that gold has all the characteristics of hard currency. So the more the imports, the stronger the currency when the NRIs fund it, they said.

The government expects to record Rs 2.5 billion in additional revenue on account of higher import of gold.

UNI

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