Big Duty Rise Could Hit Indian Gold and Silver Imports

Source:

"The old smugglers paradise may open."

India's doubling of import duty on gold and silver is likely to encourage recycling of the metals locally in what could continue to keep imports subdued for the rest of this year, traders and analysts said on Monday.

"The full year (2009) imports could be down by 45% to 50%," said Nayan Pansare, an independent analyst who works for jewellery exporting companies.

Pansare said recycled gold could increase to 250 tons this year against 200 tons in normal years as more people could be selling gold at rallies.

"A section of the people believe prices will fall, that is why there has been scrap sales," he said.

Finance Minister Pranab Mukherjee announced in the budget for 2009/10, import duty on gold bars is being raised to 200 rupees ($4.1) per 10 grams from 100 rupees earlier.

The minister said import duty on silver is being raised to 1,000 rupees ($20.7) per kg from 500 rupees earlier.

"As it is business was bad. This will make it worse," Suresh Hundia, president of Bombay Bullion Association reacted.

Domestic demand could drop by up to 25% in the remaining six months of calendar 2009 if prices stayed around current levels, Hundia said.

Gold imports during January to June were about 59.8 tons, down 57 from 139 tons a year earlier, data from the BBA showed.

The metal was trading at 14,528 rupees per 10 grams by 1130 GMT MAUc1, up 0.45% from the previous close. It had hit a domestic record high of 16,040 in February as a weaker rupee added to the rise in dollar-denominated world prices.

Smugglers Paradise May Open

An analyst and some traders said the hike in duty may open up smuggling of gold from countries where the duty is lower than India's.

"The old smugglers paradise may open," said Madhusudan Daga, an independent analyst on gold. "Passengers may walk in from overseas with more gold on them and organized smuggling may also start."

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