Customs duty cut on gold set to be reviewed

The government is reviewing customs duties on gold, considering a hike due to increased imports and declining gem exports after last year's duty cut.

The government is reviewing customs duties on over two-dozen items, including gold, and may raise the levy on the yellow metal if it is found that the recent duty reduction triggered its consumption instead of achieving the stated policy objective of domestic value addition, two people aware of the development said.

In the case of gold, imports of the precious metal surged after a sharp duty reduction in July last year, but exports of finished goods such as gem and jewellery contracted, the people said, requesting anonymity. (REUTERS)

Customs duties are often tweaked in annual budgets with clear objectives — to shield citizens from inflation, to ensure sufficient supplies of essential commodities, to eliminate duty inversion, and to encourage domestic manufacturing by reducing taxes on inputs compared to finished goods.

In the case of gold, imports of the precious metal surged after a sharp duty reduction in July last year, but exports of finished goods such as gem and jewellery contracted, the people said, requesting anonymity.

The full budget for FY25, which was presented on July 23, 2024, slashed customs duty on gold and silver bars to 6% from 15%, and platinum, palladium, osmium, ruthenium, iridium to 6.4% from 15.4%. In the following month (August 2024), gold imports jumped by about 104% on an annualised basis to $10.06 billion, even as India’s gem and jewellery exports contracted by over 23% to $1.99 billion.

To be sure, while gold is one of the main inputs for gem and jewellery manufacturing, it is also used in electronics items albeit in a small quantity.

While announcing reduction in customs duty on July 23, Union finance minister Nirmala Sitharaman said: “To enhance domestic value addition in gold and precious metal jewellery in the country, I propose to reduce customs duties on gold and silver to 6% and that on platinum to 6.4%.”

According to government’s latest monthly trade data, gold imports jumped a staggering 331.5% to $14.86 billion in November 2024 compared to $3.44 billion in the same period last year. This surge came despite a 26.26% contraction in gems and jewellery exports to $2.06 billion, suggesting gold imports were mainly supporting domestic consumption rather than value addition for exports.

“While the gold import data is being re-examined on noticing an ‘unusual’ surge, overall numbers for April-November 2024 also don’t support proportionate value addition,” one person mentioned above said. According to provisional official data, while gold imports saw an annualised jump by over 49% to $49.08 billion in April-November 2024, exports of gems and jewellery contracted by 10.16% to $19.23 billion.

The second person mentioned above said the government is reviewing customs duty structure of various items and gold is also in the radar. “But any final decision would be based on hard facts with the intent to promote ‘Make in India’ and boost exports,” he said.

“Any decision would be taken after a granular analysis of data and stakeholders’ consultations. In the last budget, finance minister did specify the objective behind a sharp reduction in import duty on precious metals, including gold. Naturally, it is the time to re-evaluate the impact and take further action,” he added.