New Delhi: The Indian government Monday hiked the import duty on gold and platinum to six percent from four percent with immediate effect, in a bid to control the ballooning current account deficit. It also decided to link the gold Exchange Traded Fund (ETF) with the gold deposit scheme offered by banks.
Talking to reporters here, Economic Affairs Secretary Arvind Mayaram said the move was aimed at discouraging import of the precious metals.
"The duties will be reviewed after some time if there is a moderation in the quantity of gold that is imported into the country," Mayaram said.
Gold is the major reason for the ballooning current account deficit in India, which is the largest importer of the yellow metal.
India's current account deficit widened to a record high of 5.4 percent of Gross Domestic Product (GDP) during July-September quarter of 2012-13, according to the latest data of the Reserve Bank of India.
Mayaram hoped that higher import duties would help in bridging the current account deficit as it will discourage imports of the precious metal.
Gold is the second highest contributor to India's import bill after petroleum product. In the first three quarters of the current financial year, India imported gold worth nearly $38 billion. Total value of gold import in 2011-12 was $56.5 billion.
Mayaram also announced that the government has decided to link gold Exchange Traded Fund (ETF) with gold deposit scheme, enabling mutual funds to unlock their physical gold and invest in gold-linked schemes offered by banks.
"The objective is to unfreeze or release a part of the gold physically held by mutual funds under Gold ETFs and enable them to deposit the gold with banks under the Gold Deposit Scheme. The advantage will be that a part of the gold lying in stock will be brought into circulation and will partially meet the requirements of the gems and jewellery trade," according to a statement released by the finance ministry.
Apart from gold ETFs, the changes proposed to the Gold Deposit Scheme will make it attractive for individuals to deposit their idle gold with the banks.
The minimum quantity of gold that may be deposited will be reduced and the minimum tenure of deposit will also be reduced to six months (from the present stipulation of three years).
"Government has consulted Securities and Exchange Board of India (SEBI) and the Reserve Bank of India (RBI). The notification of the Gold Deposit Scheme will be modified by the Ministry of Finance. RBI will modify its guidelines reflecting these changes. SEBI will issue a circular enabling Gold ETFs to deposit part of the physical stock of gold held by them with banks under the Gold Deposit Scheme," the statement said.
Mayaram said the government also appealed to the people to moderate their demand for gold.
Currently, there are two gold related schemes, namely, the Gold Exchange Traded Fund (Gold ETF) and the Gold Deposit Scheme, that are intended to channelise gold holdings into institutional channels.
The Gold ETF is provided by mutual funds. Units are sold to subscribers through "authorized participants" and are traded on the exchange. The units are backed by physical gold held by the mutual fund.
In the Gold Deposit Scheme, banks accept gold deposits by clients which is the lent to the gems and jewellery traders. At the end of the deposit period, the depositors are entitled to a return of physical gold or its equivalent in cash at the current market price of gold.