Slash exorbitant gold import duty

Sometimes, even a crash can be a good thing. India’s current account deficit (CAD) has fallen to $5.2 billion, or a mere 1.2% of GDP in the second, July-September, quarter, from the 5% level in the same quarter last year and 4.9% of GDP in Q1 this year. Exports have soared, backed by a weak rupee and stronger demand in the West. Imports have fallen, led primarily by gold. This is a welcome fall. Savings were diverting from financial markets into the yellow metal. This demand has been dented by several factors. One, as the global economy recovers, gold has steadily lost value. From over $1,700 per ounce (oz) one year ago, gold now trades at $1,200 per oz, a near-30% fall in value. Even though the rupee is 20% weaker today than it was in summer, the rupee value of gold is down to Rs 29,000 for 10 gm, compared to its 2012 level of Rs 32,000. Anyone who bought gold last year has lost 10%.
Historically, gold price cycles are long and the yellow metal is likely to slide a long way further in global markets. An asset that loses value quickly loses its sheen, so Indians, whose demand for gold was assumed to be insatiable, have cannily retreated from the market. Two, the run up in gold prices created its own crisis. At astronomical prices, it started selling less and less. For occasions like weddings and festivals, when Indians traditionally buy new jewellery, old knick knacks started getting recycled.It is now time for the government to slash the import duty on gold, which it had hiked to 10%, to pare it back to the 2% level earlier. With the deficit under control and gold losing its sheen as an investment vehicle with nearassured returns, it is pointless to maintain duties at such high levels. Though the evidence is mostly anecdotal, smuggling is increasing. Raghuram Rajan, governor of the RBI, has fretted in public about this and various government officials are also worried. The number of couriers caught smuggling gold from the Middle East is going up. We cannot afford a return to largescale criminality that the return of gold smuggling will bring. Slash the duty and be done with it.
Source:Bullion Bulletin

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