Touch of gold to Union Budget!
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Touch of gold to Union Budget!

Over the years, India's budget proposals have had just a touch of gold, but each time it has ushered liberalisation.

india Updated: Feb 17, 2006 20:10 IST

Gold might only be a small footnote in the budget, but industry members said a big impact could be expected if it involved futures trading and investment.

The budget for 2006-2007 fiscal year beginning April 1, is scheduled to be presented by Finance Minister Palaniappan Chidambaram on February 28.

Over the years, India's budget proposals have had just a touch of gold, but each time it has ushered liberalisation in gradual waves in the closed and conservative gold market.

Gold mutual fund was proposed last year, while high customs duties due to which smuggling thrived, especially in the seventies and eighties, was brought down just three years ago.

Analysts and traders said this year they will be on the lookout for measures that indicate when option trading would be allowed, and banks and foreign financial institutions ushered into the futures market.

"Options would be useful for speculators and hedgers and entry of financial institutions could boost the liquidity in futures," said Gnanasekar Thiagarajan, director at Commtrendz Research.

The industry could also look out for any tweaking on gold mutual funds after last year's budget, also presented by Chidambaram, proposed the introduction of gold units for as little as Rs 100 a piece.

The units are on the threshold of being launched, and industry members would want to hear more from the government on it.

Uneven taxes

Traders said they expected no tinkering in customs duty that has been gradually brought down to Rs 100 rupees per 10 grams from Rs 400 earlier.

"The current duty is pretty nominal," said Mukul Sonawala, president of the Bombay Bullion Association in Mumbai. "When it comes to levies, the industry worries more over sales tax and octroi duty."

Sonawala said uneven levies - for instance Mumbai has a 1 per cent sales tax on gold while in Ahmedabad it is just 0.25 percent - had skewed the logistics of importing and moving gold to production and consumption zones.

Also octroi, a tax levied by the municipal corporations, is at at 0.1 per cent in Mumbai and negligible or nonexistent elsewhere.

Silver in Mumbai attracts a sharp 2 per cent octroi due to which the trade has migrated to other cities.

"A uniform taxation will eliminate much speculation, and the trade will be healthier for it," Sonawala said.

Market watchers believe a lot more could be done to improve the gold market which is moving fast from a luxury item to a financial instrument.

"There should be compulsory hallmarking across the country to prevent sales of impure gold," said Madhusudan Daga, a consultant with Gold Field Mineral Services Ltd.

"A uniform trading practice is needed in this fragmented industry."

First Published: Feb 17, 2006 17:04 IST