Saturday, August 24th, 2013 - MiningMarketWrap

According to the Indian government, the move is designed to curtail the current account deficit and stem volatility in the rupee. Customs duty has been hiked to 10% from 8% on the precious metal, in a bid to help the rupee edge up against the dollar.

The government has raised import duties on the precious metal – the third time this year.

According to the government, the move is designed to curtail the current account deficit and stem volatility in the rupee. Customs duty has been hiked to 10% from 8% on the precious metal, in a bid to help the rupee edge up against the dollar.

India’s Revenue Secretary Sumit Bose told media persons that the basic purpose of enhancing the duty was to curb the import of gold. In other words, though the government claims the duty hike is set to firm up the rupee and stem the CAD, the real purpose is to ensure that citizens clamp down on their spend on the precious metal.

The hike has made gold costlier by about $10-$12 (Rs 600-Rs 700) per gram.

Customs duty on platinum has also been raised to 10% from 8%, and on silver to 10% from 6%. The government also raised the excise duty on gold and silver bars. Import duty on refined gold bars will now be 10% as compared to 8% earlier, the third hike in the last eight months, while excise duty on silver bars will be 9% as against 7% earlier.

The Indian currency, which has lost nearly 12% since May, erased its morning losses to end at 61.19 against the dollar.

According to a note out from UBS, despite the rupee’s favourable knee-jerk reaction to the latest announcements, the currency is quite sticky around historically weak levels.

It points out that the weakening rupee was one of the key drivers for the lacklustre physical demand in the country during 2012.

Adding, “While this dynamic remains a feature this year, it has been offset by the collapse in the gold price. A further offset – albeit limited for now – may also come from the increasing appetite for physical rather than financial assets in India this year. Weak outlooks on the rupee and on macroeconomic fundamentals have prompted demand for alternative investment. A good monsoon season this year could also help soften the blow on gold demand from tighter regulations. Our economists note that above-average rainfall and slowing levels could lead to a strong harvest season this year, with production potentially exceeding 2011-2012 levels.”

The higher taxes on precious metals are set to fetch the exchequer an additional $787 million (Rs 48 billion).

India’s Finance Minister P Chidambaram had also warned that the government’s plan is to restrict gold imports to 850 tonnes in the current financial year, as compared to over 950 tonnes in 2012-13. Gold imports stood at about 335 tonnes in the April-June quarter.

A bullion retailer said that the hike would check imports of gold which rose from 205 metric tonnes in the April-July 2012-13 period to 383 metric tonnes, during the same period in the current fiscal, an 87% jump. “Gold jewellery prices have already shot up with the Reserve Bank mandating 20% of every lot of imported gold to be set aside for the purpose of exports,” he said.

The government is set to make adjustments in customs duties on gold ore and concentrate, gold and silver dore bars. Also, customs duties on gold dore bars and on gold ore and concentrate have been increased from 6% to 8% and on silver dore bars from 3% to 7%.

The hike is likely to generate a shortage of the yellow metal for consumers, jewellers and retailers. “The aim is to discourage consumption of gold. The increased local premium will be factored in the end price, making it expensive for the consumer,” said Jayant Manglik, president, of Religare Securities.

The move is set to cut into the buying by stockists and jewellers ahead of the festive and marriage season this month.

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The Indian government has raised import duties on the precious metal – the third time this year.

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