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Increasing import duties on gold is not the best way to reduce supply as it brings down legal imports but increases unauthorised inflows, the Economic Survey has warned, calling for increased vigilance.
The best way to reduce gold imports, which has become a big worry for the Government which is struggling to control imports and its adverse effects on balance of payments, could be through more attractive investment opportunities for the public, it said.
Unauthorised channels
“While the supply of gold through organised channels can be constricted, there is need to be vigilant regarding gold inflows through unauthorised channels.
Ultimately, the best way to reduce gold imports in a sustainable way will be to offer the public financial investment opportunities that generate attractive returns,” the Economic Survey said.
The K. U. B. Rao committee report on gold loan companies, released by the RBI last month, has strongly recommended introducing new gold-backed financial products to release the hidden economic value of idle gold within an economy.
With the Economic Survey, too, backing such an option, the chances are high of the Finance Ministry announcing options such as gold accumulation plan, gold-linked account, modified gold deposit scheme and gold pension products.
The Government has put in place a series of measures, beginning with last year’s Budget, to check gold imports.
Fall in value
In Budget 2012-13, import duty on standard gold and platinum was raised from 2 per cent to 4 per cent and on non-standard gold from 5 per cent to 10 per cent. On January 21, 2013, the import duty on gold and platinum was increased from 4 per cent to 6 per cent.
As a result, the value of gold imports during April-December 2012 declined by 14.7 per cent to $ 38.02 billion and quantity of imports fell by 11.8 per cent compared to the same period the previous year. Total gold consumption also fell by 23 per cent during the first three quarters of 2012.
Gold imports, however, still remain about 10 per cent of India’s total imports. The figure would be much higher if the unauthorised import of gold is also taken into account, experts say.
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