BULLION traders in India, the world’s largest consumer of gold, are expecting an import duty increase on precious metals in the February budget and that could keep demand strong in the months ahead.
“The many-fold rise in prices (of precious metals) may attract the attention of the decision makers and also act as a rationale for any duty hike for the government,” said Daman Prakash, ex-convenor, Tamil Nadu Bullion Forum.
In the 2010/11 (April-March) budget, the government raised the duty on imports of gold for the second time in succession to Rs300 ($6.65/£4.32) per 10 grams from Rs200 ($4.43/£2.88) earlier.
On silver, the last budget imposed a new duty of Rs1,500 ($32.29/£21.62) per kg from Rs1,000 ($22.19/£14.41) earlier.
Gold prices in India have risen 23.7 per cent from Rs16,772 ($372.2/£241.78) per 10 grams since the last budget was presented. On Wednesday (December 29), gold was trading at Rs20,741 ($460.4/£299).
“The government has hiked the duty twice, so why won’t they do it again, the first import duty hike was a surprise and then came another one, so why not a third one,” said an official with a private bank in Mumbai, which imports bullion.
“Some of the traders are buying, thinking there might be a duty hike this time as well,” the official added.
Finance ministry officials were not immediately available for comment. Details of the budget are a closely held secret although sometimes indications emerge in local media.
Hiking import duties again could spur imports through unofficial channels, the head of All India Gems and Jewellery Trade Federation (AIGJTF), a 10,000-strong member trade body, said.
“If there’s a duty hike it would simply jack-up prices further. It would also increase the delta between the official gold rates and unofficial gold prices,” said Vinod Hayagriv, chairman at the AIGJTF, encouraging an underground trade.
Gold is one of the regulated sectors in India and the federal government has allowed 23 state-run and private banks to trade in bullion at the wholesale and retail level.
Jewellers also sell coins and bars through retail outlets.
