India Hikes Import Duty on Gold, Silver In Budget

There is nothing to cheer for the bullion market in the annual budget that India's Finance Minister Pranab Mukherjee presented in the Parliament on Monday.

Two months after the Congress-led United Progressive Alliance government headed by Prime Minister Manmohan Singh came to power, the ruling alliance presented the annual budgetary allocations.

Here are the key points related to commodities and bullion market in the budget that Mukherjee presented:

**The government has re-imposed tax on gold.

**The government has increased customs duty on gold and silver.

**But branded jewellery items have been exempted from excise duty. Tax holidays/exemptions have also been announced for gems, jewellery and textiles.

**The government has decided to abolish the controversial Commodity Transaction Tax (CTT) in line with recommendation of Economic Advisory Council of Prime Minister.

Presenting the Union Budget 2009-10, Mukherjee announced increasing import duty on gold bars from Rs 100 per 10 gram to Rs 200 per 10 gram, while other forms of gold (excluding jewellery) is increased from Rs 250 per 10 gram to Rs 500 per 10 gram.

Gold prices rose by Rs 100 per 10 gram in the Delhi Bullion Market immediately after Mukherjee announced the decision to increase import duty. Mukherjee, however, kept import duty on gold and silver jewellery unchanged.

The customs duty on silver has also been increased from Rs 500 per kg to Rs 1,000 per kg. The duty on gold and silver has not been reviewed since 2004 even though prices have increased manifold, the finance minister said.

He further said the revised rates would also apply to gold and silver, including ornaments that are not studded, when imported by a bonafide passenger as baggage. On the other hand, Mukherjee announced excise duty exemption on branded jewellery.

"I fear that my proposals relating to gold and silver on customs side would somewhat dent my popularity with women. I propose to salvage this by fully exempting branded jewellery from excise duty".

Mumbai-based bullion analyst Rakesh Kumar said that the hike in customs duty on gold and silver will hit the bullion market in India. “India is the largest consumer and importer of gold and silver in the world. I think the increase in customs duty will result in fall in gold and silver imports to India," Kumar told Commodity Online.

Since January 2009, gold and silver imports by India have been falling thanks to the high prices of these bullion commodities. India has so far managed to import only 57 tonnes of gold in the last six months. Last year, the country had imported nearly 400 tonnes of gold.

Kumar said the decision to give tax holidays to branded jewellery items looks good for the market. "This could result in a fall in gold jewellery prices," he said.