India Cuts Gold Import Tax to Fight Smuggling, Boost Demand

India, the world's second-largest consumer of gold, slashed import duties on the precious metal along with silver in an effort to curb smuggling and revive retail demand.

 Gold bracelets for sale at a store in Mumbai (photo credit: PR)
Gold bracelets for sale at a store in Mumbai
(photo credit: PR)

In a bid to boost retail sales and curb smuggling, India significantly reduced import taxes on gold and silver on Tuesday. The move comes as the world's second-largest gold consumer grapples with these issues.

  • Industry officials believe the tax reduction from 15% to 6% will make gold more affordable, leading to a rise in legitimate purchases.
  • This could potentially increase global gold prices, which already hit record highs in 2024. However, it might also widen India's trade deficit and weaken the rupee.
  • Local gold prices initially dipped after the announcement, reflecting the anticipated rise in demand.

Tax Cut Aims to Level the Playing Field

  • The move aims to make legitimate gold imports more competitive compared to smuggled gold, which often benefits from tax evasion.
  • "It's a massive step in the right direction," said an official with the World Gold Council's Indian operations, highlighting the creation of a fairer market for honest businesses.

Positive Impact on Jewelry Industry Expected

  • The duty cut is expected to bring down retail gold prices, potentially boosting jewelry sales which were hit by record highs earlier this year.
  • Shares of jewellery companies in India jumped significantly following the announcement, reflecting optimism in the industry.

India Seeks to Secure Critical Minerals

  • Finance Minister Nirmala Sitharaman also announced an exemption on import duties for 25 critical minerals, including lithium, a key component in electric vehicle batteries.
  • This move highlights India's strategic effort to secure a steady supply of these essential materials.

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