The Indian government hiked by 2% the import duty on custom to curb the demand for gold. Alarmed by the mounting current account deficit, driven by large-scale gold imports, the government raised the import duty on gold and platinum to 6 per cent from 4 per cent. This is a second hike in 10 months. It also made a similar change in the import tax of platinum, which is considered by many as an alternative to gold for investment and for making jewelry.
The move comes after recent data showed India’s current-account gap ballooned to a record $22.3 billion, or 5.4% of gross domestic product, in the July-September quarter. The huge deficit has pressured the rupee, dragging the local currency down 3% against the U.S. dollar in 2012.
“It is difficult to establish the impact (of the tax) on CAD (current account deficit) and by how much it will come down, but there will be some moderation in gold demand,” Economic Affairs Secretary Arvind Mayaram, told reporters. India’s gold imports totaled $38 billion between April and December last year.
The tax would be reviewed if imports moderate, Mr. Mayaram said.