India keeps gold import duty steady - for now

Last Updated: Thu, Feb 28, 2013 10:21 hrs

India held its gold import duty unchanged in Thursday's national budget, defying industry expectations that the world's biggest bullion buyer would increase rates to curb demand and rein in a record current account deficit.

The government could still raise the duty if imports do not ease in response to a January hike to 6 percent from 4 percent. Traders had expected the budget to usher in a levy of 8 percent.

"It is good the government has not imposed any restrictions or any further duty hike on bullion," said Prithviraj Kothari, director of RiddiSiddhi Bullions Ltd, whose imports of 100 tonnes of the precious metal accounted for about a tenth of India's total last year.

"If any data shows a further increase in current account deficit, they might hike the import duty," he added.

India, the world's top gold consumer, imports almost all it needs. Gold imports have already surpassed $38 billion, the forecast a year ago for the entire fiscal year to March 31, and Finance Minister P. Chidambaram has urged Indians to moderate buying to reduce pressure on the rupee currency.

Recent falls in gold prices have undermined Chidambaram's efforts. Domestic gold prices have dropped about 3 percent since Jan. 21, when the government hiked import duties. Demand jumped on Wednesday as buyers hoped to pre-empt any budget duty hike.

India's imports of gold, second only to oil in value, contributed to a widening of the current account deficit to a record high 5.4 percent of gross domestic product (GDP) in the July-Sept quarter of the current fiscal year to March 2013.

A safe level for the current account deficit would be 2.5 percent to 3 percent of GDP, Prime Minister Manmohan Singh said after Chidambaram announced the budget.

But the budget did raise to 100,000 rupees ($1,900) the maximum value of jewellery that may be brought home by Indian women who have lived abroad for more than a year, or who are changing residence, from 20,000 rupees earlier.

Indians have been obsessed with gold for centuries. Besides its role as a gift at weddings and festivals, its intrinsic value makes it a hedge against inflation and an investment, especially for rural dwellers with little access to banks.

In the longer term, the government says, lowering inflation and offering alternative avenues for investment could help reduce demand for gold.

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