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The center is most likely going to raise the import levy on gold from current 10% to 12-13% to tackle the problem of widening Current Account Deficit. This hike may impact the jewelry exports and reduce the domestic demand as well.
As per sources, the government is also considering other policy measures that could curb the gold imports besides the increase in duty.
Also, the gold cost is high with 10% duty when seen in comparison with rates in competitor nations. Also, the rupee depreciation since January is 14% which has led to a decrease in margins for jewelry exporters.
The current account deficit of the country in the first quarter of the year has increased to 2.4% from 1.9% of the last quarter of the previous fiscal. Increasing crude prices and falling rupee value are the problems the government is facing.
The government had increased the duty on gold imports to 10% and also created restrictions on many shipments in 2013 when the rupee had last seen a similar kind of fall. As of now, there is a 3% GST applicable on gold in addition to the duty.
The Gem and Jewellery Export Promotion Council thinks that any increment in import duty will hamper exports of gold. The gems and jewelry exports have seen an improvement in July and August after a low first quarter this fiscal mainly due to increase in demand from the US and other importing countries.
The gold imports spiked in August and reached 100 tonnes as the jewelers have stocked up before the onset of the festive season.