Gold import duty hiked to 8% to rein in demand.

NEW DELHI: The government raised the import duty on gold and platinum by another two percentage points on Wednesday to discourage buying that threatens to worsen India's already high current account deficit.

The yellow metal, the demand for which is mostly met for imports, will now attract 8% import duty against 6% levied earlier, marking third such increase in about a year but the measure does not seem to have helped.

The decision comes close a day after the Reserve Bank of India tightened gold import rules. The duty changes will be effective immediately.

According to the World Gold Council, India could import as much as 400 tonnes of gold in the first three months of the current financial, a 200% annual increase, raising the chances that the current account deficit could worsen in the new financial year. India imported 162 tonnes of gold in May alone.

"The import duty on gold has been increased from 6% to 8%," revenue secretary Sumit Bose said.

The Indian rupee has fallen nearly 5.2% against the dollar since May amidst rising concerns that the country will find it difficult to fund its current account deficit that is projected to touch record high of 5% of GDP last year if the US Fed scaled down its quantitative easing programme.

Finance minister had said on Monday that the government could consider more measures to curb gold imports. "Necessarily, we will have to check," he had said after a meeting of the Financial Stability Development Council (FSDC) that deliberated on the issue.

Chief economic advisor Raghuram Rajan had also supported the measures to dampen demand even as he backed longterm solutions to discourage people from buying gold.

The government has been trying to make financial investments attractive to wean away people who bought gold as inflation hedge, recently launched inflation-index bonds were one such measure.

"Hopefully, the CPI inflation coming down will help that process but in the meantime the measures that the RBI announced can be way of throwing sand in the wheels so that we don't get excess," Rajan had said on Tuesday justifying measures. India imported $52.5 billion worth of gold and silver in 2012-13, down marginally from $56.7 billion in the previous fiscal as record high prices and increase in import duty to 6% from 2% last year dampened demand, but the sharp correction in prices in last few months has spurred buying.

Gold and silver imports more than doubled to $7.5 billion in April, the commerce ministry said last month. India imported 257 tonnes of gold in January-March quarter, up 27% from a year ago. Excise duty was also raised in line with the changes in the import. Duty on gold dore bars and ores was raised to 6% from 5%.

Source : economictimes.indiatimes.com