Gold prices may rise by Rs 2,000 per 10 gm as govt hikes import duty

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The government on July 1 increased gold import duty to 15 percent from 10.75 percent to stem the steep decline in the rupee and curb the widening current account deficit (CAD) amid the surging import of the yellow metal which touched $23.33 billion in May.

The duty changes came into effect on June 30.

Earlier, the basic customs duty on gold was 7.5 percent, now it will be 12.5 percent. Along with the agriculture infrastructure development cess (AIDC) of 2.5 percent, the effective gold customs duty will be 15 percent.

The net duty change will be 4.25 percent as a social welfare surcharge of 0.75 percent has been exempted. Gold also attracts an additional 3 percent Goods and Services Tax (GST) as well, which means the total levies on gold will be 18.45 percent.

"Considering the fact that we largely import gold to meet domestic demand, this is likely to lead to a proportionate rise in the price of domestic gold by around Rs 2,000 per 10gm," said Sugandha Sachdeva, VP- Commodity & Currency Research, Religare Broking Ltd.

With domestic prices surging, demand is likely to take a hit at a time when the country is already grappling with high inflation, Sachdeva noted.

India's total imports jumped by around 56 percent in May (YoY) amid surging costs of energy products, whereas gold imports, which is a non-essential commodity, rose by 677 percent from a year ago to $5.83 billion, the highest level in a year.

"India is a net importer due to oil and gold requirements. The same places pressure on the rupee (which hit a record low earlier this week, 6.5 percent decline YTD), the decision has been taken in order to reduce inflows," said Naveen Mathur, Director Commodities and Currencies, Anand Rathi Shares and Stock Brokers.

"MCX Gold has gained more than 2.50 percent at the opening trade but owing to pressure in the international Gold which is trading below $1800/oz, prices may cool down on the MCX too," Mathur added.

MCX Gold August may decline to Rs 51,400/10 gram, Mathur predicted.

In May, a total of 107 tonnes of gold was imported and in June, too, the imports have been significant. "The surge in gold imports is putting pressure on current account deficit," the finance ministry said.

As per the estimates, India's current account deficit is expected to widen to 2.9 percent of GDP for the current fiscal, as compared to 1.2 percent in FY22.