Government Considers Revising Gold Customs Duty After Surge in Imports and Drop in Gem Exports
The Indian government is reviewing customs duties on a range of products, including gold, amid a sharp rise in imports and a significant decline in gem and jewellery exports, following a duty reduction announced in 2023. Officials are considering raising the duty on gold if it is found that the reduction led to higher consumption, rather than boosting domestic value addition as originally intended.
In July 2023, Union Finance Minister Nirmala Sitharaman reduced customs duties on gold and silver to 6% and platinum to 6.4% in an effort to enhance domestic value addition in gold and precious metal jewellery manufacturing. However, recent data shows that the surge in gold imports has not translated into proportional value addition or export growth.
Import Surge and Export Decline
Gold imports surged by approximately 104% year-on-year in August 2024, reaching $10.06 billion, while exports of gems and jewellery contracted by over 23%, amounting to just $1.99 billion. The trend continued in November 2024, with gold imports skyrocketing 331.5% to $14.86 billion, while gem and jewellery exports fell by 26.26%, totaling $2.06 billion.
This shift in trade dynamics has raised concerns that the reduction in gold duties, instead of stimulating value addition, has primarily supported domestic consumption.
The Need for Policy Reevaluation
The surge in gold imports, coupled with a contraction in gem exports, has prompted the government to reconsider the effectiveness of the duty cut. While gold is a key component in the jewellery sector, its use in electronics is also a contributing factor to its high demand. Customs duties have been historically adjusted in the annual budgets to achieve clear objectives such as controlling inflation, ensuring the availability of essential commodities, eliminating duty inversion, and fostering domestic manufacturing.
In the April-November 2024 period, official data revealed a 49% rise in gold imports to $49.08 billion, while gems and jewellery exports declined by 10.16%, totaling $19.23 billion. The increase in gold imports is seen as evidence that the duty reduction may have led to higher consumption rather than the intended increase in domestic value-added manufacturing.
A Data-Driven Decision
A government source explained that the customs duty structure for various goods, including gold, is currently under review. Any changes to the duty rate will be based on a thorough analysis of trade data and consultations with stakeholders. “The goal is to promote `Make in India` and boost exports,” said the source, emphasizing that any adjustments would aim to support India’s manufacturing and export growth.
The government is set to re-evaluate the impact of the 2023 duty reduction. A decision on whether to raise the duty on gold will follow careful analysis, ensuring that it aligns with the broader objectives of enhancing value addition in the domestic economy.
Conclusion
As the government assesses the effectiveness of its gold import policies, it aims to ensure that any adjustments promote sustainable economic growth while encouraging domestic manufacturing and boosting exports. The review will continue with the intention of striking the right balance between protecting domestic industries and facilitating international trade.
