Dubai to gain from duty hike on gold

A gold trader, who did not want to be identified, said the move to raise duty was a boon to trade in Dubai as sales were expected to surge ahead of the summer holiday season.

On Monday, Indian government decided to raise the import duty on gold to Rs 400 per 10 gram from Rs 250 in an effort to curb its large scale imports. The hike in the customs duty on gold imports in India would also promote havala transactions and smuggling, traders and WGC said.

Any gain in revenue collections would be more than offset by losses in sales, they said. "The move to raise duty wasmisdirected," WGC regional chief executive Rolf Schneebeli said, adding "the Indian government was seeking to negate all the progress that had been made in the liberalisation of the gold sector."

With the duty hike, Indian consumers would be paying 9.5 per cent more than the international price compared to 6.5 per cent more before the hike. Schneebeli said other taxes from gold business at home and the domestic gold industry would surely be hit. "The hike has made it once again profitable to use unofficial channels to import gold into India," he said.

According to latest figures, India’s official gold imports in first 11 months of last year recorded a rise of 28 per cent over the same period of 1997. Gold was the primary non-oil item to be imported during the April-November period of the current financial year.

Imports surged by 18.6 per cent against a 3.8 per cent fall in exports leading to trade deficit touching $6.7 billion, more than double during the same period a year ago.

Ravi Prasad, manager,Middle East for the Geneva-based Pamp Suisse, a major world player in the bullion market said Indian economy which was turning `white’ thanks to liberalisation would again become more `black money-driven’ due to the duty hike. "The step is retrograde," he said.

The government should realise that the move would hit direct bank remittances from NRIs to India as more money would be sent to India by havala route. Already havala rates from here had dropped by 100 dirham for Rs one lakh in anticipation of a surge in unofficial gold imports by India.

Havala business which had almost died after liberalisation had now been revived with the transfer of Rs one lakh from here to India now dropping from 8,750 dh to 8,650 dh in just a day of the announcement. "The move will help smugglers and hit honest people doing gold business in India and NRIs bringing gold by official white route," a trader added.