Gold Import Duty Surge to Impact Short Term Gold Demand

WGC noted that the extreme depreciation of the Indian rupee forced the government to raise the duty on gold.

SEATTLE (Scrap Monster): The World Gold Council (WGC) noted that the recent hike in gold import duties by the Indian government is likely to have slightly greater impact on the short term demand for the yellow metal. Furthermore, the gold trade body believes that the duty hike is a temporary measure and that roll back is possible after some stabilisation of the rupee or improvement in the trade balance situation.

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In a notification, the country’s Finance Ministry had announced that the basic customs duty (BCD) on refined gold bars and gold dore will be hiked to 12.5% and 11.85% from previous levels of 7.5% and 6.9% respectively. Meantime, the Agriculture and Infrastructure Development Cess (AIDC) was kept unchanged at 2.5%. The total customs duties on gold bar and gold dore now stands at 15% and 14.35% respectively.

WGC noted that the extreme depreciation of the Indian rupee forced the government to raise the duty on gold. It must be noted that the currency had been facing severe pressure alongside rising crude oil prices following Russia’s invasion of Ukraine.

As per WGC estimates, a 1% rise in gold’s import duty may reduce consumer demand for gold by approximately 6.4 tonnes. It expects the longer term impact of the duty hike to dissipate by 2026. In addition, the rise in import costs may impact official gold inflows into the country and further incentivize gold smuggling.

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