Men carry sacks containing the budget papers as a security officer stands guard at the parliament in New Delhi yesterday.


Agencies/Mumbai/ New Delhi


India will introduce gold deposit accounts to utilise the 20,000 tonnes available within the country and launch a sovereign gold bond, Finance Minister Arun Jaitley said yesterday, but kept the import duty at the record 10% in a setback for jewellers.
In moving towards recycling of gold held in households and temple trusts for years, Jaitley signalled the government’s intent to cut shipments into the world’s top consumer of the metal. Massive gold imports often skew India’s trade balance.
“Though stocks of gold in India are estimated to be over 20,000 tonnes, mostly this gold is neither traded nor monetised,” Jaitley said in his speech unveiling the budget for the fiscal year starting April 1.
India buys 800-1,000 tonnes of gold a year, but the decision to keep the import duty intact may raise prices that were edging down on expectations of a cut. Smuggling could rise, too.
“This is very disappointing,” said Prithviraj Kothari, executive director of the India Bullion and Jewellers’ Association. “Higher import duty is nothing but a golden opportunity for smugglers to grow and expand their business.”
Kothari said smuggling could rise 20-30% in 2015 from the estimated 175 tonnes last year.
Gold premiums could now jump to as much as $5 an ounce over world prices next week, from being almost at par.
“Gold prices were declining on expectations of a duty cut but now prices would rise and premiums would shoot to $3 to $4 an ounce,” said Rahul Gupta, director at P P Jewellers in New Delhi.
Keyur Shah, head of precious metals at retailer Muthoot Pappachan, reckons jewellers and manufacturers will replenish their inventory from tomorrow, boosting premiums to $5 an ounce.
“Inventories with jewellers and manufacturers are low as everyone was waiting for the duty cut to place fresh orders,” Shah said. “Next week we would see big purchases from them.”
Salina Kishore, a Mumbai housewife who delayed purchases for her daughter’s wedding, says she will now buy less.
“I’ll have to buy whatever is the price,” Kishore said. “But now I’ll buy less and sell my old jewellery to purchase new designs.”
Jaitley said gold depositors will earn interest on their gold account, while jewellers can obtain loans on it. Banks and other dealers will be able to monetise the gold.
The sovereign gold bond will be an alternative to purchasing the metal and will carry a fixed rate of interest. Holders will be able to redeem them in cash on the face value of gold.
He did not set a timeline for the new measures.
Gold deposit schemes already offered by Indian banks have not been popular, as many women traditionally prefer to hold their gold in ornament form received as gifts during weddings or on other occasions.
“This new scheme is a balanced one and would be a success,” predicted Rajesh Khosla, managing director of MMTC-PAMP, the biggest gold refiner in India. “It would not happen overnight, government will take three-six months to come out with all the details of the scheme.”  
The government is also coming out with an Indian gold coin with the Ashoka Chakra embossed on its face.
According to the minister, Indian consumers depend on foreign gold coins to meet their needs which results in Indian cash landing up in external markets.
“I propose to mint gold coins with the Ashoka Chakra which will help to recycle gold internally in India,” he said.
Shares of major jewellers such as Gitanjali Gems and Titan Company fell after Jaitley’s speech, though the higher prices looked unlikely to significantly dent demand.
Instead, clarity around the duty will cause reluctant buyers to finally end their indecision, industry players said.

No change in income tax rate

Finance Minister Arun Jaitley did not change the income tax rates and proposed increasing the range of tax deductible investments/ spend. Jaitley said the government is proposing to rationalise various tax exemptions and incentives to reduce tax disputes and improve tax administration. He said in order to encourage savings and to promote healthcare among individual tax payers, it is proposed to increase the limit of deduction on account of health insurance premium from Rs15,000 to Rs25,000. For senior citizens this limit is to be increased from Rs20,000 to Rs30,000. For senior citizens above the age of 80 years who are not eligible to get health insurance deduction will be allowed for medical expenses up to Rs30,000. The deduction limit of Rs60,000 on expenditure on account of specified diseases like cancer will be enhanced to Rs80,000 in the case of senior citizens.



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