Hike in Import Duty not to Hit Gold Demand in India

Even though the world predicted a slump in demand for gold in India after the new Budget proposed a hike in import duty, the scenario may not change in India for now.

According to analysts, gold demand is unlikely to change in India as the increase in duty is not very high.

India's gold demand is likely to recover in late August. The increase in prices because of the tax is marginal at $6.3 per ounce and the total import tax at $12.60 per ounce is too small to spur smuggling.

However, jewelers see some gold rush in the immediate future because the prices will go up only after the new import duties come into effect.

Import duties have been increased to Rs 200 per sovereign for gold bars and Rs 500 per sovereign for other forms of gold except gold jewellery.

While women are grumbling, jewellers are upbeat at the prospect of higher short-term sales. The price of gold is unlikely to jump immediately to reflect higher duties, so people would buy now to avoid purchasing at higher prices later.

Importing gold will be a tad expensive now.

The bullion market has very little to cheer with the announcement of the Budget 2009- 2010. Tax on Gold has been increased from the earlier Rs. 100/10 grams to Rs 200/10 grams and this surely does not seem to be good news, especially when imports have fallen drastically this year. Silver has also come under the hammer.

Other forms of Gold (excluding jewellery) is also going to be expensive when imported, by around Rs. 250/10 grams to Rs. 500/10 grams.

Gold prices have risen by a hundred rupees; anticipating Gold trades will be affected now that a higher import duty has been charged.