India reduced import duties on gold and silver on Tuesday (July 23), a move that industry officials say could stimulate retail demand and help alleviate smuggling activities in the world’s second-largest consumer of gold and silver.
The Indian government announced on Tuesday that import duties on gold and silver would be decreased from 15% to 6%, which includes a 5% basic duty and a 1% Agricultural Infrastructure and Development Cess (AIDC).
Sachin Jain, the Chief Executive Officer of the World Gold Council’s India operations, said, “This is a significant step in the right direction as it will reduce the incentive for smuggling gold. It will create a level playing field for honest industry participants.”
Following the announcement, local gold prices dropped by 6% to reach a new low in over three months at Rs 68,500 per 10 grams. Earlier this month, Indian gold prices had surged to a historic high of Rs 74,777 per 10 grams, leading to a contraction in market demand.
In the budget report, Indian Finance Minister Nirmala Sitharaman stated, “To increase the value addition in domestic gold and precious metal jewelry, I propose to reduce the duty on gold and silver to 6%.”
According to Reuters, Saurabh Gadgil, Chairman of PNG Jewellers, mentioned that the record-high gold prices had impacted jewelry demand in India, but the reduction in duties would lead to price declines and boost consumption.
On Tuesday, the Indian gold trading market experienced a premium for the first time in eleven weeks, with dealers charging a premium of $20 per ounce over the official domestic price (including the 15% import tax and 3% sales tax), compared to offering a $65 discount last week.
Stock prices of jewelry manufacturers such as Titan Company, Tribhovandas Bhimji Zaveri, Senco Gold, and Kalyan Jewellers surged by up to 10%.
Reuters analysis suggests that the increased demand for gold in India could once again boost global gold prices to this year’s historic highs, but it could also widen India’s trade deficit and exert pressure on the weakened rupee.
Overseas gold prices rebounded on Tuesday, rising by 0.4%.
Finance Minister Sitharaman also announced the exemption of import duties on 25 essential minerals, including lithium. Lithium is a vital material for manufacturing electric vehicle batteries, and India has been exploring ways to ensure a stable supply of lithium.