Excise duty hike led to rise in gold smuggling: Rangarajan

Last Updated: Sun, Dec 02, 2012 06:46 hrs
A gold bar and granules are pictured at the Austrian Gold and Silver Separating Plant 'Oegussa' in Vienna

The recent measures by the government to curb the demand for gold has resulted in a rise in the smuggling of the yellow metal, C Rangarajan, chairman of Prime Minister's Economic Advisory Council, said on Saturday.

In a panel discussion regarding the country's economic prospect, which was chaired by Reserve Bank of India's governor D Subbarao, Rangarajan said, "If we ban gold imports, smuggling will go up...there are already indications that smuggling of gold has gone up in the last three months."

Rangarajan said he has been told by revenue department officials that the seizures of smuggled gold have gone up in the recent past. The government has doubled the excise duty on gold to four per cent this year to curb gold demand.

According to Rangarajan, the increase in gold demand in recent years, to some extent, resulted in high inflation.

According to the former RBI governor, last year's gold imports touched $60 billion, of which $15-20 billion was due to high inflation as people used the precious metal as a hedge against inflation. India has been the world's largest consumer and importer of gold, and last year, imports touched 969 tonnes.

Following the government measures, in April-October, imports declined 35 per cent on year and overall imports are set to drop over 17 per cent to 800 tonnes this year.

Rangarajan's statement comes at a time when there has been a speculation that government might further take action to reign in gold imports in view of rising current account deficit. Rangarajan sounded optimistic about GDP growth of six per cent despite growth in the last two quarters was 5.5 per cent (Q1) and 5.3 per cent (Q2).

He expects growth rate climbing back to seven per cent next year and eight per cent to the year after (2014-2015).

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