20th March 2012,Tuesday
If Indians continue to buy gold the way they have done, the government may think of more drastic measures than the taxes imposed in the budget, such as restrictions on imports.
India's import of gold rose 54% in April-December this year from a year ago to $45.5 billion, contributing to the record trade deficit in the current year, pegged at $160 billion in the first eleven months.
"If CAD (current account deficit) crosses 3.5% (of GDP) we will have to think of cutting down some imports," Finance Secretary RS Gujaral said in Delhi on Monday, hinting at gold. Increase in tax on gold in the budget is essentially aimed at narrowing the current account deficit, he said.
India was largest consumer of gold in 2011 with total demand of 933.4 tonnes, according to the World Gold Council, down only moderately from 1,000 tonnes in 2010 despite record high prices. The high inflation has also prompted many investors to switch to gold from financial savings.
The share of financial savings in the overall savings of households has dropped to 44% in 2010-11 from 52% in 2007-08. The budget has doubled the basic customs duty on gold bars, the second increase in the last two months, in an attempt to moderate the demand.
"One of the primary drivers of the current account deficit has been the growth of almost 50% in imports of gold and other precious metals in the first three quarters of this year," finance minister said in his budget speech justifying the levy.
The budget has also imposed a tax at source on purchase of jewellery in excess of Rs 2 lakh in cash. The C Rangarajan-headed prime minister's economic advisory council (PMEAC) has in its review of the economy also called for measures to discourage gold consumption and shift people to financial savings.
India is expected to end the year with a current account deficit of 3.6% of GDP, which has put pressure on the rupee and raised concern among foreign investors.
If Indians continue to buy gold the way they have done, the government may think of more drastic measures than the taxes imposed in the budget, such as restrictions on imports.
India's import of gold rose 54% in April-December this year from a year ago to $45.5 billion, contributing to the record trade deficit in the current year, pegged at $160 billion in the first eleven months.
"If CAD (current account deficit) crosses 3.5% (of GDP) we will have to think of cutting down some imports," Finance Secretary RS Gujaral said in Delhi on Monday, hinting at gold. Increase in tax on gold in the budget is essentially aimed at narrowing the current account deficit, he said.
India was largest consumer of gold in 2011 with total demand of 933.4 tonnes, according to the World Gold Council, down only moderately from 1,000 tonnes in 2010 despite record high prices. The high inflation has also prompted many investors to switch to gold from financial savings.
The share of financial savings in the overall savings of households has dropped to 44% in 2010-11 from 52% in 2007-08. The budget has doubled the basic customs duty on gold bars, the second increase in the last two months, in an attempt to moderate the demand.
"One of the primary drivers of the current account deficit has been the growth of almost 50% in imports of gold and other precious metals in the first three quarters of this year," finance minister said in his budget speech justifying the levy.
The budget has also imposed a tax at source on purchase of jewellery in excess of Rs 2 lakh in cash. The C Rangarajan-headed prime minister's economic advisory council (PMEAC) has in its review of the economy also called for measures to discourage gold consumption and shift people to financial savings.
India is expected to end the year with a current account deficit of 3.6% of GDP, which has put pressure on the rupee and raised concern among foreign investors.
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