On July 1, the Indian government announced a 5 percentage point increase in tariffs on imported gold to 12.5% to ease pressure on the rupee. However, there are concerns that the increase in import duties will spur a resurgence in smuggling of goods.
India’s Worsening Trade Deficit
Faced with a widening trade deficit and a weakening of its currency, the Indian government announced on July 1 that it would raise its tariff on imported gold from 7.5% to 12.5%. Immediately after the announcement, the price of the precious metal in India rose 3%.
According to the report,the country’s latest data show that imports of the precious metal to India, the world’s second largest gold consumer, increased almost tenfold to $6 billion in 12 months. During the same period (May 2021 to May 2022), India’s negative trade balance widened to $24.29 billion from $6.53 billion a year earlier.
Following the announcement, some Indian experts lauded the decision, which they said would reduce demand for precious metals. However, an unnamed dealer was quoted in the report as suggesting that the hike would likely encourage smuggling of the commodity. That dealer is quoted as saying.
Gold smuggling had declined after the tariff reduction and because of the COVID-19 curbs on people moving. But now it could rise again.
Rupee’s fall
Meanwhile, another expert, Somasundaram PR, regional CEO of the World Gold Council’s India operations, agrees with experts who claim that the hike will reduce the demand for gold and consequently ease pressure on the rupee He agrees. Surendra Mehta, secretary of the Indian Bullion and Jewelers Association (IBJA), is quoted in the same report as predicting a recovery in demand for the precious metal.
According to the report, the announcement by the Narendra Modi administration came just as reports emerged that the Indian rupee had hit79 against the US dollar for the first time. At the time of this writing, the rupee-dollar exchange rate was at 79.09 yen.
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