Government may not hike gold duty again: Chidambaram

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Government may not hike gold duty again: Chidambaram
A Reuters report on Tuesday quoted Finance Minister P. Chidambaram as saying that the government is unlikely to raise the import tax on gold further to avoid gold smuggling and would instead introduce inflation-indexed instruments to help curb a record current account deficit.

There were worries that the government would hike duty on gold again to curb the current account deficit which had hit a record high of 6.7 per cent of GDP for the quarter ending December 31, 2012.

The government had already hiked the duty on gold twice before, in a move aimed at curbing the deficit. However, analysts were worried that this could lead to a surge in gold smuggling.

The government has been worried over the current account deficit, which has risen, thanks in part to gold imports. While gold imports can be curbed to help the current account deficit, there is no way that we could reduce the other major import component that is Crude Oil.

In the Union Budget 2013/14 the Finance minister had planned to introduce inflation indexed bonds. Read about inflation indexed bonds

If inflation is higher then the interest rates in the economy the real rate of returns turn negative, which is why investor prefer to invest in gold and real estate. By launching the inflation indexed bonds, P Chidambaram plans to wean away investors from gold and real estate.

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