To check widening current account deficit

In a desperate bid to rein in the widening current account deficit (CAD) owing to a spiralling demand for gold, the government late on Wednesday raised the import duty on the yellow metal by two percentage points to eight per cent from six per cent. Alongside, the import duty on platinum was increased from six per cent to eight per cent, according to the Customs notification.

The hike in customs duty with immediate effect — the second in six months — has come a day after the Reserve Bank of India (RBI) took a number of steps to restrain the demand for gold for speculative and investment purposes and restrict its imports to meet genuine domestic demand for jewellery and export purposes.

Through another notification issued by the Central Board of Excise and Customs, the government also raised the excise duty on gold ore from five per cent to seven per cent following its decision to hike import duty on gold yet again.

No gainsaying that the is making all-out efforts to discourage gold purchases buying as the precious metal is the biggest contributor to the import bill, after crude oil. Clearly, the economic situation is alarming as gold imports touched an alarming 162 tonnes in May and accounted for a whopping $ 15 billion in the last two months. In fact, the steep fall in the price of gold in recent months led to a renewed surge in buying by households which further aggravated the CAD level and resulted in a steep fall in the value of the rupee against the US dollar.

Analysts, however, opine that while the latest hike in customs and excise duties is likely to curb speculative demand for gold and thereby bring about stability in the Indian currency along with appreciation in its exchange value, the step may also render illegal inflow of the precious metal that much more attractive.

It may be recalled that the CAD — the difference between inflow and outflow of foreign currency mainly owing to higher imports and lower exports — touched a historic high of 6.7 of the GDP (gross domestic product) in the third quarter of 2012-13 ended December last year. During the entire fiscal year, it is presumed to have touched five per cent which is way above the RBI’s comfort level of 2.5 per cent.

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