Amid protests from jewellers over the government's move to raise Customs duty on gold imports to eight per cent, the finance ministry today provided relief to the industry by hiking duty drawback rates by 72 per cent. It raised the rates to Rs 173.7 per 10g of net gold content in jewellery from Rs 100.7 earlier.
Duty drawback is the reimbursement of Customs duty paid by jewellers.
Federation of Indian Exporter Organisations (FIEO) Director General Ajay Sahai said earlier duty drawback rates were announced when Customs duty on gold was Rs 300 per 10g. Now, duty has been raised to eight per cent, which means the importer will have to shell out Rs 2,000 per 10g, given international prices of around Rs 25,000 per 10g in international markets.
In January 2012, basic Customs duty was increased from Rs 300 per 10g to an ad valorem rate of two per cent on standard gold bars. Further, in the Budget 2012, it was doubled to four per cent. In January this year, it was raised to six per cent and then again in May to eight per cent.
Jewellers, who have been up in arms against the government move to raise Customs duty on gold imports from six to eight per cent and Reserve Bank of India measures to curb gold imports, said they would only get partial relief from the government's move to raise duty drawback rates.
Gems & Jewellery Export Promotion Council Chairman Vipul Shah said the move was not going to help exporters much as duty drawback rates were revised once duty was raised. Much more important relief to exporters would have been to provide speedier clearance of these drawback reimbursements, he added.
Ajay Kedia, MD of Kedia Commodity Comtrade, said,"this is like giving a small sweetener after a bitter pill of customs duty hike."
He said the hike, coupled with rupee depreciation has made import too costly. When asked that the depreciation of rupee would also help exporters, he said demand has crashed like anything for jewellery exports in international markets.
But, then why are imports of gold seeing huge jump? For April-May, the first two months of the financial year, gold and silver imports were up 109% to $15.9 billion against $7.6 billion in the corresponding period of 2012-13.
Kedia said imports are rising because there is buzz in the market that customs duty may be further hiked to ten%.
However, chief economic adviser Raghuram Rajan recently ruled out any further curbs on gold imports.
Due to steep rise in gold imports coupled with ban on gold trading in special economic zones, the trade deficit rose to $20.1 bn in May compared to $19 billion a year before. The deficit was very close to the $20.96 billion of October 2012, a record so far.
This may have repercussions for current account deficit which rose to a record 6.7% of GDP in the third quarter of 2012-13.