Finance Minister P Chidambaram has appealed to people not to buy so much gold, a day after his 2013-14 Budget surprised traders by keeping gold import duty unchanged at 6 per cent.
But Chidambaram, who is trying to rein in imports by the world’s biggest bullion buyer to curb a record current account deficit, told CNBC television on Friday that the duty was not yet high enough to increase smuggling.
“I’m hoping that the people of India will heed my appeal and not demand so much gold,”
Chidambaram said.
Traders had expected a rise in duty to 8 per cent in the Budget, after a 50 per cent hike on January 21 from 4 per cent was neutralised by the falling global prices.
Chidambaram said on Friday the higher import duty had “brought down gold imports to some extent.”
But, traders said buying actually picked up after a more than 2 per cent drop in prices triggered by a strong dollar.
“After the import duty, prices went down by Rs 3,000 and that spurred buying,” said Kumar Jain, vice-president of the 12,000-member Mumbai Jewellers Association.
Indians imported 860 tonnes of gold in 2012, down just 11 per cent from a year earlier, despite record high prices in the second half.
Raising the duty too much risks encouraging illegal import of gold. But Chidambaram said he did not think the taxes were high enough for that yet.
“There is a point at which more duties will only tempt people to indulge in more smuggling. I don’t think we have reached that point yet,” he added.
Gold is second only to essential crude oil in the import bill of Asia’s third-largest economy.
Chidambaram said ways to tackle the current account deficit, which hit 5.4 per cent of the gross domestic product in the July to September quarter, were by encouraging domestic production and boosting exports.