Hike in gold duty would encourage smuggling: PC Jeweller

Disappointed with hike in gold import duty to 8 percent from 6 percent, Sanjeev Bhatia, CFO of PC Jeweller told CNBC-TV18 that this move will encourage smuggling of the yellow metal.

“When the arbitrage opportunities would arise between the international prices and the domestic prices its very logical conclusion that people would be tempted to go in for alternative channel,” Bhatia said.
To curb the exceptional demand for gold seen in past two months the government today increased gold duty for the second time in 2013. In April, 2013, gold and silver imports surged by 138 percent to USD 7.5 billion, as against USD 3.1 billion a year ago. Below is the verbatim transcript of the interview Q: The government has decided to hike import duty from 6 percent to 8 percent, what is it going to mean for companies like yours?
A: My first reaction is that of disappointment because after the Finance Minister had given very specific statements that increasing import duty was not an option. I have to admit is a bit disappointing. Q: Are you really surprised? You maybe disappointed but are you surprised because over the last fortnight or so we have heard from the Finance Minister himself and from several government officials talking about how they were worried about that 138 percent jump in gold imports in the previous month, the current account deficit (CAD) continues to be a big challenge so are you really surprised that the government has gone down this road and hiked import duty again?
A: April month was an exception. I don’t think that any future policy decision should have been based on the demand or sudden spurt in demand for one month only. April month was something exceptional all over the world not only in India. Q: It is more a reactive measure at this point in time, it may not necessarily be a long-term policy. Do you believe that the government's attempt to try and curb gold imports will finally bare fruit with the decision to hike import duty from 6 percent to 8 percent?
A: If the demand is there I am only afraid that this may start pushing the demand to unorganised channels rather than the legitimate channels. Q: You mean smuggling, you believe that this is going to lead to smuggling?
A: Yes because when the arbitrage opportunities would arise between the international prices and the domestic prices, I cannot predict it but it seems to be a very logical conclusion that people would be tempted to go in for alternative channel. For companies like us, we have no option but to go through legitimate channels but perhaps a lot of people may get tempted.