The government increased the import duty on precious metals, after which a huge jump was recorded in the prices of gold and silver in the local market on Wednesday, May 13. Gold price increased by Rs 8,550 to more than Rs 1.65 lakh per 10 grams. At the same time, the prices of silver also increased by Rs 20,500 per kg. This increase is a direct result of the government’s decision to reduce non-essential imports.
According to All India Bullion Association, the price of silver in Delhi markets increased from Rs 2,77,000 per kg to Rs 2,97,500 per kg. The price of gold of 99.9 per cent purity rose by Rs 8,550 to Rs 1,65,350 per 10 grams, more than 5 per cent from the previous closing price of Rs 1,56,800 per 10 grams. The government on Wednesday increased the import duty on gold and silver from 6 percent to 15 percent. Import duty on platinum has also been increased from 6.4 percent to 15.4 percent. These new rates have become effective from Wednesday itself. This step has been taken to control the rising import bill and discourage non-essential purchases amid the West Asia crisis. Prime Minister Narendra Modi had also called for curbing gold purchases to reduce foreign exchange expenditure.
Impact of duty increase on the market
Local traders say the real impact of this higher fee will be visible in the purchase bills in the coming days. Harish V, head of commodity research at Geojit Investments Ltd, said the increase in import duty will increase local prices and temporarily reduce physical demand. However, he advised investors not to panic, as gold remains a safe investment in times of global uncertainty and domestic currency pressure. Analysts also pointed out that the weak rupee has also pushed up the prices of precious metals. The rupee fell to as low as 95.80 against the US dollar, amid concerns over forex outflows and higher crude oil prices.
Demand and challenges of gold in India
India is the second largest consumer of precious metals in the world. Prices have risen in recent months due to a steady increase in demand for various purposes, including investment. Gold is India’s second largest commodity import after crude oil. Rising gold buying has led to increased foreign exchange outflow, putting pressure on the rupee to record low. The Gems and Jewelery Export Promotion Council has warned that increasing the import duty on gold does not curb imports but increases prices.
Alternative solutions and global situation
Jewelery retailers have suggested that imposing quantitative restrictions on gold and silver imports rather than increasing import duties would be a more effective way to control the country’s current account deficit. Brent crude oil was trading above US $ 107 per barrel in global markets on Wednesday. However, in overseas markets, spot gold fell 0.3 per cent to US$4,700.86 an ounce, while silver rose 1 per cent to US$87.45 an ounce.