India hikes gold import duties to curb deficit

India’s Finance Ministry has raised gold import duties from 10% to 15% to curb a 95% surge in October, leading to a record monthly trade deficit of $31.46 billion. Similar measures were taken in July, banning specific gold jewelry imports. The duties also apply to silver findings. The move aims to prevent duty circumvention and address a rising trade deficit.

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The Finance Ministry of India has implemented a notable increase in import duties on gold, elevating them from 10% to 15%, effective as of Monday 22nd January 2024. The primary objective of this move is to curb the substantial surge in gold imports, which escalated by 95% to reach $7.2 billion in October, contributing to an unprecedented monthly merchandise trade deficit of $31.46 billion. Although gold imports moderated in November, there was a renewed spike of 156%, amounting to $3.03 billion in December, from a lower base.

This recent policy follows a prior ban on specific gold jewelry imports in July of the previous year, prompted by a sudden surge in duty-free imports from Indonesia under the India-Asean Free Trade Agreement (FTA).

In addition to gold, the Finance Ministry has also increased import duties on silver findings and coins of precious metals. The revised 15% duty comprises a 10% basic customs duty (BCD) and an additional 5% under the all-industry duty drawback (AIDC), with an exemption from the social welfare surcharge (SWS). Basic customs duty is a standard tariff on imported goods, while AIDC is an extra duty aimed at offsetting the impact of other taxes on production costs. SWS, on the other hand, is a surcharge designed to fund welfare schemes.

Reports suggest that the duty hike is also intended to prevent circumvention of the existing 15% duty on gold and silver bars. Commerce ministry data reveals that gold imports, both in terms of value and volume, surged by 86% and 63%, respectively, in the October-December quarter of the fiscal year 2024. This growth exceeds the average of 27% and 15% observed from April to December in the same fiscal year.

The October peak in gold imports was attributed to festival-related and catch-up demand, as import volumes had declined in the previous fiscal year and remained subdued in the first half of the current fiscal year, according to Gaura Sen Gupta, an economist at IDFC FIRST Bank. “Gold or silver findings” refer to small components like hooks, clasps, and pins used to secure jewelry pieces.