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India's import duty on Gold likely to increase by 3% to control CAD

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NEW DELHI (Scrap Register): A bid to lessen non-essential imports to hold current account deficit (CAD) which could boost import duty on gold by 2-3 per cent from 10 per cent and give a bonus to investment in sovereign gold bonds in place of physical demand in India.

India could increase the import duty on gold by 2 per cent to tackle the present scenario. The additional duty of 2 per cent collected on physical gold can be utilised to repay sovereign gold bond on maturity to incentivise customers who have invested in gold bonds. By doing so, investment demand for gold will shift to sovereign gold bond.

The industry watchers feel the reintroduction of Prevention of Money Laundering Act (PMLA) for gold could check gold demand, bullion dealers and jewellers feel that with elections around the corner, the government may not introduce it and this could affect gold demand in the upcoming festival season. 

Some traders feel that an optimal solution rather than changing the format of payment or raising import duty from 10 per cent would be rationalising the duty structure on raw gold or dore, which makes up 55 per cent of the gold India imports.

The duty on dore is 9.35 per cent against 10 per cent on bullion bars imported by banks on consignment basis. Cheaper gold increases demand and this in turn widens the CAD. Duty on dore should be brought on a par with that on direct imports to reduce pressure on CAD.

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