India hikes gold import duty, industry fears smuggling surge (updated)

Tribhovandas Bhimji Zaveri

05/07/2019 13:38

* Hikes gold, silver import duty to 12.5% from 10%
    * Duty hike makes smuggling of gold attractive
    * Gold smuggling could rise to 200 T/yr-bank dealer

 (Adds industry officials comments)
    By Rajendra Jadhav
    MUMBAI, July 5 (Reuters) - India raised the import duties on
gold and other precious metals on Friday in a surprise move that
industry officials say could dampen retail demand and boost
smuggling in the world's second-biggest bullion consumer.
    Lower demand from India could weigh on global prices  XAU= 
that are trading near their highest level in six years.
    Jewellery trade associations have asked India's government
to reduce gold import duties, which have caused a surge in
smuggling.  urn:newsml:reuters.com:*:nL3N21U1YV
    The government instead hiked the duty to 12.5% from 10% as
policymakers try to bring down the fiscal deficit and
recapitalise banks.  urn:newsml:reuters.com:*:nL4N2461FX
    "This is a shocking move. We were expecting reduction in the
custom duty," Anantha Padmanabhan, chairman of All India Gem and
Jewellery Domestic Council (GJC) told Reuters, adding the hike 
has effectively raised smugglers' margins.
    Gold smuggling surged in India after the government raised
the import duty to 10% in August 2013. Grey market operators -
businesses that smuggle gold from overseas and sell it in cash
to avoid the duties - got a further boost in 2017 when India
imposed a 3% sales tax on bullion.
    The south Asian country also raised import duty on gold dore
or non-refined mined gold, to 11.85% from 9.35% and to 11% from
8.5% on silver dore, Finance Minister Nirmala Sitharaman said in
her first federal budget speech on Friday.
    India has been trying to bring transparency in bullion
trading by curbing cash transactions but the hike "will dilute
efforts to reduce cash transactions", said Somasundaram PR, the
managing director of the World Gold Council's Indian operations.
    Gold futures  MAUc1  jumped over 2% after the announcement
to a record high of 35,100 rupees ($512.82) per 10 grams.
    The high local prices may also further weaken demand, said
Snehal Choksey, director at Shobha Shringar Jewellers.
    Shares of jewellery makers such as Titan  TITN.NS ,  P C
Jeweller  PCJE.NS , Tribhovandas Bhimji Zaveri Ltd  TBZL.NS  and
Thanga Mayil Jewellery Ltd  THNG.NS  fell as much as 7.8%.
    Up to 95 tonnes of gold was smuggled into India in 2018,
according to the WGC.
    "Legal imports would fall and smuggling could rise above 200
tonnes this year," said a Mumbai-based dealer with a gold
importing private bank.
    Industry officials fear the higher duties could prompt
customers to buy jewellery from some informal jewellers who use
smuggled gold to make ornaments.
    "The increase in custom duty makes gold sold by organised
retailers more expensive and encourages customers to buy from
unorganized jewellers," said Vaibhav Saraf director of Aisshpra
Gems & Jewels.
    ($1 = 68.4450 Indian rupees)

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Indian gold market    http://tmsnrt.rs/2b1Tl6J
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 (Reporting by Rajendra Jadhav; editing by Christian
Schmollinger and Emelia Sithole-Matarise)
 ((rajendra.jadhav@thomsonreuters.com; +91-22-6180-7153 ;
Reuters Messaging:
rajendra.jadhav.thomsonreuters.com@reuters.net))