Union Budget 2023: As Gold Prices Hit Record, Industry Hopes For Duty Cut

The government hiked the import duty on gold to 15% in July 2022. The impact of the move is evident from the data in the table below (Illustrations 1 & 2), the imports have fallen in a big way. The total imports of gold in the year 2021 were over 1,000 kg, this was a year that witnessed lockdown, and business disruptions in the second quarter (April-June) thereby netting import duty of nearly $6 billion for the government, an average of $500 million per month. The calendar year 2022 saw a dip in terms of imports- this was largely due to the rising gold prices coupled with a hike in import duty. This led to imports of gold in CY22 only to about 700 kg, import duty collection of about $4.4 billion, and a monthly average of $360 million.

2021	Average Gold Rate (INR)	Duty Rate	Quantity (Kgs)	Quantity (gms)	Duty Collected (INR)	Gold Imported (USD mn)	Duty Collected (USD mn)
Jan	4295.88	12.5	70.38	70380	37793004.3	4027.47	503.43
Feb	4213.99	12.5	97.48	97480	51347468.15	5284.56	660.57
Mar	3910.67	12.5	176.76	176760	86406327.3	8483.83	1060.48
April	4139.36	10	117.04	117040	48447040.18	6218.37	621.84
May	4368.89	10	12.52	12520	5469844.02	652.48	65.25
June	4232.77	10	16.49	16490	6979833.608	905.75	90.58
July	4330.63	10	76.44	76440	33103297.5	4127.64	412.76
Aug	4155.8	10	119.53	119530	49674277.4	6633.17	663.32
Sept	4123.63	10	96.41	96410	39755868.63	4997.68	499.77
Oct	4278.65	10	99.12	99120	42410003.58	5029.4	502.94
Nov	4322.06	10	81.4	81400	35181548.05	4174.59	417.46
Dec	4277.63	10	94.53	94530	40436436.39	4695.58	469.56
Total			1058.1	1058100	477004949.1	55230.52	5967.95

2022	Average Gold Rate (INR)	Duty Rate	Quantity (Kgs)	Quantity (gms)	Duty Collected (INR)	Gold Imported (USD mn)	Duty Collected (USD mn)
Jan	4277.63	10	44.6	44620	19086762.8	2348.1	234.81
Feb	4481.73	10	91.5	91540	41025710.7	4772.4	477.24
March	4781.81	10	18.8	18840	9008930	1000.6	100.06
April	4663.09	10	28.5	28470	13275803	1675.3	167.53
May	4525.83	10	110.5	110460	49992263	6013.8	601.38
June	4505.96	10	52.4	52420	23620255.4	2724.2	272.42
July	4457.43	15	44.7	44680	29873695.9	2320.9	348.14
August	4468.6	15	67.4	67390	45170868.4	3549.7	532.46
Sept	4257.67	15	80.7	80720	51551868.4	3790.8	568.61
Oct	4343.65	15	76	76000	49517610	3661.6	549.25
Nov	4513.89	15	66.5	66540	45053102.8	3209.1	481.36
Dec	4725.29	15			0		0
Total			681.68	681680	377176870.2	35066.39	4333.25

Data for the month of December 2022 is yet to be updated

A hike in the import duty in the past has affected domestic consumption of gold as well for re-exports of gold and gold jewelry, thereby affecting the earnings of the industry. Measures should be taken to boost exports.

Total imports in 2022 have fallen over 30% YoY. Also, the gold prices in the month of July 2022 at the time of the hike in import duty was around Rs 46,000/10 gm it has risen to over Rs 57000/10 gm. This shows that the move of hiking import duty does not help keep prices in check. There are far more and better ways to support the currency. The INR has strengthened largely due to the US dollar index softening. This is likely to continue in the near future providing natural strength to the INR. The move by the government did not yield the desired results and had an adverse impact on the growth of the industry. The currency and the deficit have stabilized now, making room for the government to reverse its decision or provide partial relief on the import duty front.

About the author: Colin Shah, the author is the Managing Director of Kama Jewelry