Comments on Gold Duty Hike of RBI!

          - Mr. Prithviraj Kothari (MD, RSBL:RiddiSiddhi Bullions Ltd.)

                

          

Finance Minister is back with a new change in Gold policy, announcing another attempt to curb Gold imports by increasing the import duty from 6% to 8% with immediate effect, will have a loud impact on the Bullion sector. Increase of 2% at current rate of $1400 per ounce is 28 USD per ounce. To be clear, with this duty hike a difference of 9.24 percent between the international and domestic price of the yellow metal is evident.

The headline should however have had a negative psychological impact and it is surprising that Gold wasn’t sold harder yesterday, which might again point to the fact that traders are now cautious on the next set of US data.

Taxes included in the price is 8.24% Customs Duty + taxes(Educational Cess etc) + 1% VAT = 9.24% while  1% TCS is applicable on Cash Sale, will incentivize a rise in illegal channels and malicious activities with respect to importing gold and related products like jewellery etc., in the country. To give you a snapshot, 1 kilo of smuggled Gold into India, where the bar has a size smaller than a Samsung S4 (approx), would yield approx 4160 USD i.e. INR 2,37,000 (approx as per current rate of 1 USD = INR 57), or 3 times a yearly income per capita [GDP (nominal) - 2012 estimate  - Total $1.947 trillion (10th), Per capita - $1,592 (140th), Source: http://en.wikipedia.org/wiki/India]. Every Indian going on a holiday abroad might be tempted to carry some Gold back (in prescribed limits as per Government norms), as the tax saving could help paying part of the trip. While 1 kilo of Gold is not affordable to most of Indians, organized illegal channels could finance porters and collect the Gold at their return to the country.

In turn it will lead to an increase in unemployment among the skilled artisans of the country (around 1-2 million people depend on this sector to earn their livelihood) as well the businesses of local jewelers across the country. The government should harness the existing reserve of gold in our country rather than turning towards imports and implementing this alarming hike on customs duty. Also other opportunities for revenue generation, like increasing exports should be explored by the government of India. Hiking the duty on imports will in no way, curtail the absolute demand (can reduce it), as the precious metal has always been regarded as one of the best investment options for social security.


"The primary purpose of this blog by Prithviraj Kothari - MD, RSBL(RiddiSiddhi Bullions Ltd.) is to educate the masses of the current happenings in the Bullion world."

- Previous Blog:
"See Saw Yet Again" :
 http://riddisiddhibullionsltd.blogspot.in/2013/06/see-sawyet-again.html