Indian gold import tax hike to bell CAD may backfire in the long run

MUMBAI (Scrap Monster) : The Indian government has targeted gold in a desperate attempt to tame the rising current account deficit (CAD) of the country. The country increased taxes on imports of gold, silver and platinum yesterday in a bid to rake in additional Rs 4,830 crore for the exchequer.

The economists feel that the third increase in duties on gold imports in the past eight months may halt the official gold imports by the country. On the other hand it could lead to serious implications in the long run. The efficacy of such measures is debatable, especially at a time when the jewellery demand is expected to spike up ahead of the festival and wedding season in the country.

The tight controls on official gold imports may create acute shortage of gold in domestic market which may spurt acts of gold smuggling across the border. The huge gap between supply and demand for the precious metal creates room for illegal trafficking of gold from overseas. According to customs, the quantum of seized gold during the April-June quarter this fiscal soared nearly 365% in comparison with same quarter the previous year.

The non-availability of gold may leave the bullion industry of the country in disarray. The jobs of thousands of workers are already at risk. Further curbs on gold imports may cause severe stress to jewelry firms.

Industry experts feel that the recent series of measures may bring down the import bill and thereby help in softening the CAD, but may have adverse effects in a long term perspective.