On July 23, 2024, the Indian government announced a significant reduction in import duties on gold and silver, a move that could have far-reaching implications for the global precious metals market. Nirmala Sitharaman, India's Finance Minister, revealed the decision to lower the import duties from 15% to 6% during her budget speech.
This policy change is expected to stimulate retail demand and potentially curb smuggling activities in India, the world's second-largest bullion consumer. The new tax structure includes a 5% basic customs duty and a 1% Agriculture Infrastructure & Development Cess (AIDC) on gold and silver imports.
"To enhance domestic value addition in gold and precious metal jewellery, I propose to reduce customs duties of gold and silver to 6%"
Industry experts have welcomed the move. Sachin Jain, CEO of World Gold Council's Indian operations, stated that this decision would create a level playing field for honest industry stakeholders and reduce incentives for gold smuggling.
The announcement had an immediate impact on local gold prices, which fell by 6% to 68,500 rupees per 10 grams, reaching their lowest level in over three months. This drop is expected to boost consumption, as high prices had previously dampened demand.
The duty reduction also affected the stock market, with shares of jewellery makers such as Titan Company, Tribhovandas Bhimji Zaveri, Senco Gold, and Kalyan Jewellers experiencing significant gains of up to 10%.
In addition to the gold and silver duty cuts, Sitharaman announced an import duty exemption for 25 critical minerals, including lithium. This move aligns with India's efforts to secure supplies of lithium, a crucial raw material for electric vehicle batteries.
While the reduced import duties are expected to boost demand and potentially impact global gold prices, concerns remain about the effect on India's trade deficit and the value of the rupee. The government's decision reflects a delicate balance between stimulating the economy and managing fiscal challenges.