India Welcomes Lower Import Duties for Gold
4 February 2021
Domestic demand is set to rise after India’s finance minister announced a reduction in gold import duties.
India, the world’s second-biggest bullion market, is lowering import duties on gold and silver as of 1 February. As part of the country’s Budget 2021, the government cut import duties on gold and silver to 7.5% from 12.5%, but imposed a 2.5% cess on the imports. After the changes, gold imports would effectively attract 10.75% tax against 12.5% earlier.
The duty for gold dore bar was cut to 6.9% from 11.85%; silver dore bar to 6.1% from 11%; platinum to 10% from 12.5 %; gold/silver findings to 10% from 20%; and precious metal coins to 10% from 12.5%.
“Hopefully, this is the first of a series of such cuts to make bullion an asset class that operates mainstream”, Somasundaram PR, the managing director of the World Gold Council’s (WGC) Indian operations, told Reuters.
Reducing Grey Market
The lower import duties is expected to reduce incentives for parallel trade while boosting domestic demand for jewellery, Srivatsava Ganapathy, director, Foretell Business Solutions, told SBMA.
The high import duty for gold has long been a detriment to the country’s gems and jewellery manufacturers compared to their counterparts in other countries, and has fuelled the smuggling of gold into India. Up to 120 tonnes of gold was smuggled into India in 2019, according to the WGC.
The country is also the world’s largest importer of the precious metal, which mainly caters to the demands of the jewellery industry. In volume terms, the country imports 800 to 900 tonnes of gold annually.
More Demand Expected
“I believe this move coupled with increased digital connectivity in India would make buying and investing in gold a reality for millions of Indians who have been hitherto excluded from accessing this culturally important metal in the country”, Vikas Shenoy, head of APAC originations & partnerships at Trovio, told SBMA.
Higher demand for gold from India could also support global prices, as India is a major consumer of gold and silver, and a lower price may improve demand outlook and boost international prices.
“The recent rise in the gold price impacted demand in the country. Over the last couple of years, market participants had been demanding duty reduction to support the industry. The improvement in the economy, along with the duty cut, will benefit gold demand”, Chirag Sheth, South Asia principal consultant at Metals Focus, told SBMA.
Gold imports by India were subdued in 2020 due to the combined effect of surging international prices and the pandemic-related travel and movement restrictions, though it has registered an uptick recently.
“As long as the borders globally remain restricted, businesses will not see much significance in this pandemic situation. However, in the long run, this might encourage local Indians who travel the world, to pay the reduced duty fee”, Bhavesh Lankapati, director, Mahesh & Co, said in comments to SBMA.