The Indian government announced that on July 1, it raised the duty on imported gold by five percentage point to 12.5% in an attempt to ease the pressure on the rupee. There are concerns that the increase in import duties could lead to a revival of smuggling.
The Indian government, faced with a growing trade deficit and a weakening currency, announced that it would increase the duty on imported silver from 7.5% to 12.5% on July 1. The precious metal’s value in India rose by 3% immediately after the announcement.
A report shows that India, the second-largest consumer of gold in the world, saw its imports increase by nearly tenfold to $6 billion over the past twelve months. The country’s negative trade balance increased to $24.29 Billion in the same time period (May 2021-2022), compared to $6.53 billion a year earlier.
Some Indian experts applauded the announcement and said that it would reduce demand for precious metals. The report does not mention a dealer who suggested that the increase would likely encourage the smuggling. According to the report, the dealer said:
After the reduction in duty and COVID-19 restrictions on movement of persons, gold smuggling fell. It could now rise again.
Rupee Decline
Somasundaram PR, the regional CEO of the World Gold Council’s Indian operations, agreed with experts who believe that the increase in gold demand will reduce the rupee’s pressure. Surendra Mehta (secretary at India Bullion and Jewellers Association) is also quoted in the report, which predicts that demand for precious metals will rebound.
The report states that the announcement of Narendra Modi’s government was made just as it emerged that the Indian rupee had broken the 79 mark in relation to the U.S. Dollar for the first-time. The rupee-dollar exchange rate is currently at 79.09.
