No reduction in gold duty : a missed opportunity - Chirag Mehta, Quantum Mutual Fund
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Chirag Mehta, Sr. Fund Manager- alternative Investments, Quantum Mutual Fund
No reduction in gold duty – a missed opportunity
Finance Minister Nirmala Sitharaman disappointed gold markets by skipping to reduce custom duty on gold in the Union Budget of 2022-23.
Custom duty on gold currently stands at 10.75% which is very high and contributes to price distortions, working against the various gold market initiatives undertaken by the government.
Higher government intervention through higher custom duty has over the years ensured that India, despite being the world’s second-largest consumer of gold, importing 800-900 tons annually, is a price taker.
International gold prices are used to set the domestic gold price in India. The International gold price is used as a base price and converted to Indian rupees using the Dollar/ Rupee rate and we add to it various Indian duties and levies to arrive at the Indian gold price.
This domestic price is different from the international price to the extent of levies and duties which currently amounts to a significantly large 14%. A duty reduction can help bring domestic gold prices closer to international prices to the extent of reduction in levy and enable more efficient functioning of the gold markets in India.
The large gap between domestic and international prices creates lucrative margins and encourages illicit imports of the precious metal.
Price distortions also make it difficult to channelize the hoard of India’s gold savings into circulation and thereby integrate the gold market with other financial markets.
Thus, rationalizing the custom duty and minimizing these price distortions have been a long-standing demand of the bullion industry which we believe will go a long way in developing the gold sector and bringing India to the centre of international gold markets. Rising government revenues did provide them with a window of opportunity to rectify this anomaly for the greater good of consumers and the development of gold markets. However, it seems like a missed opportunity this time around.
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