Notwithstanding a cut in the customs duty on gold and silver to 6%, bullion prices fell sharply on Tuesday. While the August gold futures fell 6% or by Rs 4,268 per 10 gm to hit the day’s low of Rs 68,500, silver September futures on the MCX tanked by Rs 4,928 per kg or 5.5% to hit the intraday bottom of Rs 84,275.
The reaction was triggered by Finance Minister Nirmala Sithraman’s announcement about the cuts in her Budget speech. She presented her seventh Union Budget on Tuesday.
“To enhance domestic value addition in gold and precious metal jewellery in the country, I propose to reduce customs duties on gold and silver to 6% and that on platinum to 6.4%,” Sitharaman’s Budget speech stated.
Anuj Gupta, Head Commodity & Currency at HDFC Securities, said the sharp fall was on account of the customs cuts.
Prithviraj Kothari, Managing Director of RiddiSiddhi Bullions Limited (RSBL) said the Finance Minister announced a reduction in BCD (Basic Customs Duty) in gold and silver from 10% to 6%.Adding 5% of the AIDC (Agriculture Infrastructure and Development Cess), which remains unchanged, the total import duty on gold and silver has been reduced from 15% to 11%, he said. He called it a knee-jerk reaction while welcoming the step for the bullion industry.“Bullion market participants were expecting a 5% cut in duties, but FM has announced a 9% cut, which is a commendable step from the government. Indian consumers would be able to buy at a 9% cheaper rate from today, so it will boost physical demand,” he added.Expert Jateen Trivedi, VP Research Analyst – Commodity and Currency, LKP Securities also attributed the fall to the duty cut announcement. He however, sees the broad view as volatile and weak for MCX gold as Comex gold stays below $2415.
The Indian jewellery industry had demanded a cut in import duty on gold from the Narendra Modi government in this year’s Union Budget. Its wish list also included an additional 0.5% concession on import of gold via the India International Bullion Exchange (IIBX) along with the permission to export through the IIBX. The industry was also demanding for allowing all imports of gold only via India International Bullion Exchange (IIBX)
It argued that the move would streamline the process, reduce transaction costs, improve transparency, and potentially attract more international business to India’s bullion market.
The industry had also advocated an exemption on the interest income from Sovereign Gold Bonds (SGBs).
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