Gold zooms after duty hike

Standard gold opened higher and closed at Rs 4350, showing a sharp rally of Rs 120 over the last close of Rs 4230. Similarly, 22-carat gold was nominally quoted steeply higher at Rs 4025 from yesterday8217;s level of Rs 3915 and ten-tola gold bar .999 purity jumped up by Rs 1,400 to end at Rs 51,000 from the last close of Rs 49,600.

According to trade sources, one reason for the hike in gold import duty can be the sharp rise in gold imports last year. With the trade deficit now touching 6.70 billion, it was a cause for concern among government circles. Gold importswere projected at 7 billion by the end of 1998-99, which is next only to oil imports at 7.5 billion.

Gold accounted for the largest import of non-oil products, whose shipments into the country increased by 18.66 per cent during April-November of the current financial year. Between January and November last, gold imports increased by 28 per cent to 575 tonnes and the government was of the view that rising imports were leading to increased trade deficit.

The government has estimated that the hike in customs duty for gold would help it raise an additional revenue of Rs 250 crore. Industry sources, who did not wish to identify, said higher domestic prices for gold would lead to large scale smuggling. Wondering why the government had raised the duty, the sources said imports might have registered a marginal rise but the government was feeling the pinch since the yellow metal was now being allowed to be imported through the legal channel.

Gold imports were liberalised by Manmohan Singh, who allowednon-resident Indians NRIs returning to the country, to bring gold after paying a stipulated duty of Rs 200 per 10 gram as a step to check smuggling. The imports were further liberalised last year when nominated agencies mainly banks were allowed to import gold and sell it to jewellery manufacturers.

Reacting to the hike in the import duty, World Gold Council8217;s financial institutional manager Derrick Machado said in a statement: 8220;The recent move will retard the progress made towards a more liberalised gold policy. The repercussions will be a reduction of gold inflows through official channels and a likely increase in smuggling of gold 8212; as the latter becomes a lucrative proposition with the differential between gold prices in the Indian and international markets increasing to 9.5 per cent at current prices.quot;

quot;It8217;s a retrograde step by the government,quot; said an executive from one of the leading foreign banks engaged in the gold business. quot;The hike in import duty is most likely to have been announcedwithout consulting the RBI and would in no way help the government to garner additional revenue as is expected, nor would it make it cheaper for the consumer.quot;

According to a bank executive, the government step has been the result of quot;consistent lobbyingquot; by a section of big Indian bullion traders and dealers who form a large portion of the gold cartel stationed in Dubai and wanted a shift in the gold imports in their favour. After the liberalised import policy since 1992, gold imports through illegal channels had declined considerably, hurting interests of these traders. quot;It is this lobby which had earlier tried to convince members of the gold policy at the RBI to increase the import duty on gold but had not succeeded in doing so,8221; he said.