GOLD - HAS THE BUDGET REMOVED ITS SHEEN?
By Ruma Dubey
Housewives and gold traders do not like Pranab Mukherjee too much at this juncture. He has gone all out – with fork and knife after gold. Thus for those who as such balked at the high gold prices, will today have to contend with even more higher prices. The price of the metal per se will continue to be dictated by the global diktats but for Indians, the other charges, over and above the price of the metal – making charges and duties is sure to make the sheen go dull.
In the Budget, it seemed as though the FM was going all out with swords drawn - he proposed an increase in basic customs duty on standard gold bars, from 2 to 4%; also on gold coins whose purity exceeds 99.5%. He did not spare platinum too. The basic customs duty on non-standard gold was hiked to 10% from 5%. That’s not all. He has also proposed a 1% hike in basic duty on gold ore, concentrate and bars to 2%. And not to miss out on excise duty, the FM has proposed to double duty on refined gold to 3%. Plus there is also the stipulation that a PAN Card will be required to buy gold worth over Rs.2 lakh. And another 1% tax is proposed to be imposed on customers when they buy gold over Rs.2 lakh.
What does this mean in actual rupee terms? Import duty of gold has increased from Rs.30 per gram to Rs.115 per gram. Today, when an NRI gets gold into the country, from, say, Dubai, when it exceeds the duty free limit, he has to pay 2% of the value of gold. Till 17th Jan 2012, one kilogram of gold could be imported by paying a duty of Rs.30,000/kg, this was hiked from 18th Jan to 58,000/kg and now, thanks to the Budget, this will go up to Rs.1,15,000/kg. But despite this, imported gold remains cheaper. Infact the World Gold Council has issued a statement, saying that the difference in price between the internationally-sourced and domestic gold has widened to 3-3.5%/10 gms due to additional taxation and this could lead to increase in smuggling, especially during festivals. The hike in excise and customs duty in the domestic market, could lead to a rise of Rs.1000/10gm in the price of gold and naturally it will all be passed on to the consumer.
The traders are especially worried about the 1% tax levy on customers buying old over Rs.2 lakh. For the organised sector, this is a huge deal as it will curb bulk buying but for the unorganized sector, it would mean more black money and actually more loss to the Govt.
The Govt has justified the hike in import duty on the pressure it exerts on the current account deficit as gold imports have also grown by 50% till 9MFY12. And the FM is of the opinion that this hike will lead to a fall in imports. But will it really?
Not really. In the short term, it will indeed affect demand, not just in domestic market but imports too. But this will be temporary as long term, gold remains the best hedge against uncertain times and inflation. With crude set for a rise, leading to all round inflation, gold, despite these hikes, will continue to have a leg up. If the US economy continues to do well, gold might lose sheen as a safe haven and that might put it finally in the same basket as other commodities, moving with the trend and not over and above it. The near term bias remains negative for trades and it is pegged at $1600 in international market which could lead to bottom fishing. In domestic markets, traders confer that Rs.27,000 is the downside while the upside is capped at Rs.28,000 levels.
Well, if there is a wedding in the family and you have bought the required gold, good for you! But if not yet, well, your wedding cost just shot through the roof.