Budget 2025: Gold market braces for possible duty hike amid soaring imports
Tue Jan 28 2025
The 2024 Union Budget brought a wave of optimism to the Jewelry industry with a historic 9% cut in import duties on gold, reducing the duty from 15% to 6% and from 14.35% to 5.35% for gold dore imports. This marked the sharpest duty reduction ever, and the first time since 2013 that the duty fell below 10%.
However, as India prepares for Budget 2025 on Feb 1, there are growing speculations that the government may revise these duties. Economists argue that while the duty cuts have stimulated higher gold consumption, they have not led to increased domestic value addition or higher exports. Instead, the surge in gold consumption has contributed to a widening fiscal deficit, with the rupee depreciating to near 87 against the dollar.
Trade data for November 2024 released on Dec 16 revealed a record high in India’s trade deficit, largely driven by a surge in gold imports. Initial estimates showed that gold imports reached $14.8 billion, accounting for 21% of total merchandise imports. Despite downward revisions to these numbers, gold imports remain elevated.
India, the world’s second-largest consumer of gold, imports the majority of its gold demand. The duty cuts, which made gold more affordable, contributed to this surge in consumption. The higher imports have exacerbated the country’s trade deficit. In fact, the import duty reduction in July 2024 led to a 104% year-on-year rise in gold imports in August. While imports eased in the following months, they hit record highs again by November.
Gold Imports in 2024 (in tons)
|
Month |
Gold Imports (in tons) |
|
January |
35.7 |
|
February |
103.5 |
|
March |
33.7 |
|
April |
42.5 |
|
May |
46.3 |
|
June |
43.1 |
|
July |
43.6 |
|
August |
136 |
|
September |
59.7 |
|
October |
86 |
|
November |
117 |
|
December (Est) |
50 |
Despite the record imports, the industry has urged the government to maintain the lower duties, arguing that the reduction has led to a drop in the landing cost of gold, making gold smuggling less profitable. Furthermore,
the jewelry sector asserts that the duty cut has boosted competitiveness by freeing up working capital and improving the industry's overall financial health.
As the Budget presentation date
approaches, the jewelry and gold industries remain hopeful that the government
will continue to support the sector by keeping import duties at their current
levels, or risk unsettling the fragile equilibrium of the market.
Source: https://www.cnbctv18.com