Import duty on gold hiked to 6%

The government has hiked import duty on gold from 4% to 6% with immediate effect. The move is aimed at curtailing demand for gold and thus reducing the import bill. The current account deficit widened to a record-high level of 5.4% of GDP in 2QFY2013. Following this, the Finance Minister had indicated at a possible hike in import duty of gold which after crude oil imports contributes substantially to the trade deficit in the economy. Gold imports in FY2012 increased by 38.7% yoy slightly lower than the 41.6% yoy increase in FY2011. On a positive note, according to World Gold Demand Council, gold demand has moderated in 1HFY2013. The value of demand for gold in 1HFY2013 has declined by 16.6% yoy as compared to 1HFY2012.

We (Angel Broking) believe that the stability in the macroeconomic environment particularly with regard to inflation is key to curbing the demand for gold since gold serves as a hedge against elevated inflation in India. We believe that reduction in demand for gold would augur positively to shift household savings towards financial assets from physical assets and reduce the import bill, thereby helping to narrow the current account deficit which is one of the key concerns facing the economy.

Source : Equity Bulls

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