India today increased import duty on gold by a fourth to 10 percent from 8 percent, stepping up its efforts to control the current account deficit ahead of a festival season when traditionally demand for the yellow metal surges.
While the customs duty on gold and platinum have been raised to 10 percent from the current 8 percent, the customs duty on silver has also been raised to 10 percent from the current six percent in an effort to reduce India’s current account deficit.
This is the third time the government has hiked the import duty on gold this year and is part of Finance Minister P Chidambaram’s efforts to curb gold imports at 850 million tonnes in the current fiscal against 950 million tonnes in the year 2012-2013. This is likely to lower the import bill by $4 billion.
The government is targeting revenues of Rs 4,830 crore from the hike in customs duty.
Apart from the customs duty, the government also raised excise duty on refined gold bars to 9 percent against the current 7 percent. Even the excise duty on silver made from ore has been raised to 8 percent from the current 4 percent.
The rupee erases losses to trade higher at 61.01, down from its close of 61.2750/2850 on Monday, after the government announced the increase in import duties on gold and silver.
Gold is the second largest item on India’s import bill and huge imports of gold fuelled a record current account deficit in 2012-13. Rising CAD has weighed on the Indian rupee, which hit a record low of 61.80 last week.
Yesterday Finance Minister P Chidambaram announced a slew of measures including easier overseas borrowing norms to fetch an additional $11 billion dollars this fiscal to arrest rupee fall and check the burgeoning current account deficit (CAD).
Finance Minister P. Chidambaram said the measures will help contain the deficit at $70 billion for the fiscal year ending in March, or an estimated 3.7 percent of gross domestic product, well below the record 4.8 percent in the previous fiscal year.
Crude and gold are the two biggest components of India’s import bill. The government wants to cut back on both of them to ease the current account deficit and help the weak rupee.
The government is aiming to cut the oil import bill by $1.5 billion this fiscal year. It is also looking for ways to boost oil imports from Iran, which will result in dollar savings.
The government will also permit public sector financial institutions and oil companies to raise funds abroad.
Chidambaram said that permission would be given to IRFC, PFC and IIFCL to collectively raise $4 billion through quasi-sovereign bonds for the infrastructure sector.
PSU oil companies would be allowed to raise additional funds — $4 billion —through external commercial borrowings (ECBs).
The Reserve Bank of India will issue a circular to allow multinational companies that have subsidiaries in India to raise ECBs.
Moreover, the interest rates on foreign currency non-resident account will also be de-regulated, in an attempt to increase capital flows into the country.