Government’s Focus on Gold

Reducing the deficit is the need of the hour for India’s economy and we have two options for the same - to reduce our imports or increase exports. With the global economic growth slowing down, increasing the exports looks difficult and hence the government is looking to curb its imports. India's top imports list includes crude and because of the rising demand it is very difficult to look at an alternative option and reduce its imports. The second most important thing is Gold (accounts to around 10% of the import bill for FY11), imports of which could be restricted. This is what the government has eyed for quite some time in order to bring down the deficit.

The Gold import duty has been hiked twice in the past one year. In 2012, the import duty on gold was increased from 2% to 4% in January 2013 and was further hiked by 200 basis points to 6%. Also, the latest media reports suggest that the commerce ministry has recommended suspension of gold jewellery imports from Thailand. India and Thailand had signed a scheme named “Early Harvest Scheme” way back in 2004, which allowed import of gold jewellery at a meager import duty of 1% against the regular rate of 6%. The Finance Ministry has long been suspecting that traders are bringing in cheaper gold from other South East Asian countries through Thailand to escape the steep import duties, said a one of the leading Business newspapers.

Further, the markets had expectations of a hike on gold import duty of around 100 to 200 basis points in the Budget 2013-2014. However, it was not announced by the Finance Minister. This move resulted in the share price of Titan Industries to move higher by almost 7.5% to Rs 273.65 per share against the broader market which closed down by 1.22% in just two trading session (including the Budget session). However, the limit for duty free gold for male passengers now stands at Rs 50,000 while for the female passengers it stands at Rs 1,00,000. Gold bought above this limit would be levied duty upon.

Gold price in the past one month has seen a correction of around 8%, from the levels of Rs 32,500 per 10 grams to the levels of sub Rs 30,000 per 10 gram. Well, this is majorly after the news that came in from world's largest economy (US), which could bring down the target of its Quantitative Easing (QE).

We believe that there is not much room for a correction on gold and the prices would remain almost stable or may move higher going ahead. It is Gold which every Indian wishes to have anytime.  However, one cannot afford to buy it on account of the soaring gold prices.