The New Delhi government is reviewing the regulatory policies on gold as the import of the yellow metal has dipped to a decade low of $7.2 billion in the first half of 2016-17.
"A working group has been formed to review the current regulatory policies related to gold," Saurabh Garg, joint secretary in the department of economic affairs, said at a round table of senior economists organized by the India Gold Policy Centre (IGPC) and the National Institute of Public Finance and Policy (NIPFP).
An import duty of 10 per cent was imposed on gold in 2013 when the current account deficit was under severe stress. Ballooning imports of the yellow metal had pushed the current account deficit (CAD) to 4.8 per cent of the gross domestic product (GDP) in 2012-13 from 4.3 per cent in the previous financial year.
CAD of $277 million, or 0.1 per cent of GDP, in the April-June quarter this fiscal - same as in the preceding quarter - has put to rest expectations of a surplus.
Icra expects a current account deficit of $20-25 billion in 2016-17 compared with $22 billion in 2015-16.
Arvind Sahay, head of the IGPC, said the increase in customs duty to 10 per cent was a concern. "Not only has the increase in prices been a likely factor for low consumer demand, but may have also caused a great deal of smuggling of gold into the country," Sahay said at the event.
According to Sahay, if GST is levied at 4-6 per cent along with a customs duty of 10 per cent, consumers will need to pay 14-16 per cent taxes on the purchase of gold.
Rathin Roy, director at the NIPFP, observed that gold in India had been historically not just a store of value and a medium of exchange but also an investment.
"The treatment of gold as a resource requires unorthodox thinking and careful treatment. India's gold policy is an integral part of our macroeconomic and fiscal toolbox," he said.
India imports 99 percent of its gold demand in the form of standard gold of 995 purity.
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