To ease pressure on the rupee’s currency, India announced that on July 1, it would increase the duty for imported gold by five percent to 12.5%. There are concerns that the increase in import duties could lead to a revival of smuggling.
India’s Worsening Trade Deficit
The Indian government, faced with rising trade deficits and a weakening currency announced that on July 1, it would increase the duty on import gold from 7.5% up to 12.5%. Immediately after the announcement, the precious metal’s price in India went up by 3%.
According to a report, the latest data from the country shows that imports of the precious metal into India — the world’s second largest consumer of gold — grew by almost ten times in twelve months to $6 billion. During the same period (May 2021 to May 2022), India’s negative trade balance grew to $24.29 billion, up from the $6.53 billion that was recorded a year ago.
Some Indian experts celebrated the announcement. They claim that the move will reduce the demand for precious metals. Unnamed dealers are quoted as saying that the price hike could encourage smuggling. This is what the dealer was quoted saying
After the reduction in duty and COVID-19 curbs, gold smuggling fell [the]Movement of people. However, it is possible for the number to rise once again.
Decrease in Rupee
Meanwhile, another expert, Somasundaram PR, a regional CEO of the World Gold Council’s Indian operations, concurred with experts who assert that the hike will help reduce demand for gold and thus ease the pressure on the rupee. Surendra Mehta (secretary at India Bullion and Jewellers Association) is also quoted as predicting that demand will rise for precious metals.
According to reports, Narendra Modi announced the change at the same time that news emerged that the Indian currency had crossed the 79 threshold against the U.S. dollars. As of the writing date, the rupee/dollar exchange rate stood at 79.
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