According to recent media reports, there is some pressure within the Indian government to reduce tariffs on gold imports. According to an article in the Wall Street Journal, India’s Trade Ministry has approached the Finance Ministry to sharply reduce the import tax on gold. The article said the Trade Ministry would like to see tariffs drop to 2% from the current level of 10%, brining the tax back to 2012 levels. A ministry official was quoted, saying that the lower tariffs would help lower initial costs and in turn boost jewelry exports
Looking at gold demand in India, analysts from Natixis said last week that according to their data in a recent research report, gold imports into India reached 523 tons last year, a drop of 27% compared to 2013. They added that higher tariffs and a softer rupee have helped to keep gold imports down.
The Indian government first introduced higher duty fees and import restrictions for gold as a way to reduce the country’s massive current account deficit; however, analysts have noted that because of lower oil prices, which have a much larger impact on India’s deficit, the government has room to be more flexible on gold imports. “We would not be surprised to see a cut in gold import tariffs especially as with the collapse of oil prices which should have substantially helped the Indian budget deficit,” said the analysts at Natixis.
Although there are expectations that gold tariffs will eventually be reduced, analysts have said that the market will have to wait until the end of the month for an official announcement when the government will release the 2015 budget.
The Indian government has slowly been relaxing stringent regulation for the gold market. In November, it removed the 80:20 import restrictions, which said that 20% off all imported gold had to be exported before any new metal could come into the country.
Joni Teves, a commodity analyst at UBS, said that the removal of the 80:20 rule was a much more important step by the government to reestablishing the Indian gold market than the current proposal to reduce tariffs. She said that the removal of the import restrictions opens up the market to small participants and allows them to be more flexible to price fluctuations. She added that currently it is a relatively quiet period for the Indian gold market, which is why imports have been softer than expected.
However,she added that they are expecting to see stronger imports later in the year.
Source:Kitco