India raises gold duty to stem soaring consumption

AFP/New Delhi

India, the world’s top gold consumer, yesterday hiked import duty on the precious metal to stem surging demand and reduce the country’s ballooning current account deficit.

Gold purchases are one of the biggest contributors to India’s current account deficit — the broadest measure of trade — which widened to just under five% from 4.2% the previous year as imports outpaced exports.

The import duty on gold had been raised from 6% to 8%, Revenue Secretary Sumit Bose told the Press Trust of India news agency.

The import duty hike was the second since the start of the year. Last year the government doubled the duty on gold to 4%.

Indians bought 162 tonnes of gold last month, twice the customary amount, as they sought to exploit a slide in global prices.

The hike is part of a wider set of measures to improve the finances of Asia’s third-largest economy, which faces stubbornly high inflation, a sharp slowdown in growth as well as the hefty current and fiscal account deficits.

Ratings agencies have threatened to downgrade India’s sovereign investment rating to junk status unless the government takes steps to clean up the nation’s finances.

India has long been the world’s biggest buyer of gold with purchases strongest during the religious festival and wedding seasons.

Last year’s rise in the import duty on gold dampened demand temporarily but purchases soon picked up again.

Many Indians — especially in rural areas where there are few banks — buy gold in the form of jewellery, bars and coins as a hedge against inflation.

Finance Minister P Chidambaram has said that gold imports must be curtailed, leading the Reserve Bank of India to take separate steps to curb imports.

Gold has fallen 16% since the start of the year as investors bet that the US Federal Reserve may soon start unwinding its financial stimulus as the US economy shows signs of recovery.

Yesterday, international gold prices rose after US jobs data missed expectations. Spot gold was up 0.4% at $1,404.17 an ounce at 1401 GMT, having earlier touched a session low of $1,395.19. US gold futures for April delivery were up $8.40 an ounce at $1,405.60, off a low of $1,395.10.

Mitsubishi analyst Jonathan Butler said the jobs data was being closely watched by gold traders.

 “As the unemployment rate has been explicitly tied into quantitative easing, there has been a direct correlation between the non-farm payrolls and what happens to the gold price,” he said.

China’s total gold imports from Hong Kong fell to 125.715 tonnes in April from a record high of 223.519 tonnes in the previous month, despite a drop in prices of the metal to two-year lows during the month.