The government may raise the import duty on gold by two percentage points to 6% in the next fortnight as part of its plans to rein in the current account deficit (CAD), which is now at a record high.
A widening CAD - the difference between export earnings and import expenses net of cash payments and remittances - is a worrying sign for a slowing economy where fulfilling immediate dollar payment obligations may necessitate dipping into the pool of foreign exchange reserves.
Economists have attributed India's widening current account deficit to rising gold imports, among other causes.
Last week, finance minister P Chidambaram hinted that an option to make imported gold "a little more expensive" was "under the government's consideration".
A source said, "If no action is taken, we have to either earn about $80-100 billion every year through the capital account (such as foreign direct investment) or meet the deficit by depleting our foreign exchange reserves. Clearly, both the options are unrealistic."
A high customs duty will discourage gold imports by pushing up the yellow metal's landed price.