Amid the government's move to raise customs duty on gold imports to 8% drawing flak from jewellers, the Finance Ministry today provided relief to the industry by hiking duty drawback rates by 72%. It raised the rates to Rs 173.70 per ten gram of net gold content in jewellery from Rs 100.70.
Duty drawback rates are reimbursement on customs duty paid by jewellers.
Federation of Indian Exporter Organisations (FIEO) director general Ajay Sahai said earlier duty draw back rates were announced when customs duty on gold was Rs 300 per ten gram. Now duty has been hiked to eight%, which means the importer will have to shell out Rs 2,000 per ten gram, given international prices of around Rs 25,000 per ten gram in international markets.
In January 2012, basic customs duty was increased from Rs 300 per 10 gram to an ad valorem rate of 2% on standard gold bars. Further, in the Budget in March 2012 it was doubled to four%. In January, 2013 it was raised to six% and in May, 2013 to eight%.
Jewellers, who have been up in arms over the government move to raise customs duty on gold imports from six to eight% and RBI measures to curb gold imports, said they will only get partial relief from the government move to raise duty drawback rates.
Ajay Kedia, MD of Kedia Commodity Comtrade, said,"this is like giving a small sweetener after a bitter pill of customs duty hike."
He said the hike, coupled with rupee depreciation has made import too costly. When asked that the depreciation of rupee would also help exporters, he said demand has crashed like anything for jewellery exports in international markets.
But, then why are imports of gold seeing huge jump? For April-May, the first two months of the financial year, gold and silver imports were up 109% to $15.9 billion against $7.6 billion in the corresponding period of 2012-13.
Kedia said imports are rising because there is buzz in the market that customs duty may be further hiked to ten%.
However, chief economic adviser Raghuram Rajan recently ruled out any further curbs on gold imports.
Due to steep rise in gold imports coupled with ban on gold trading in special economic zones, the trade deficit rose to $20.1 bn in May compared to $19 billion a year before. The deficit was very close to the $20.96 billion of October 2012, a record so far.
This may have repercussions for current account deficit which rose to a record 6.7% of GDP in the third quarter of 2012-13.
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