Impact Of Customs Duty Cut On The Gold Market

How does the cut in customs duty for gold make a difference to the common man and gold vendors? Read to know!

14 Dec,2022 13:05 IST 20 Views
Impact Of Customs Duty Cut On The Gold Market

India's Finance Minister, Nirmala Sitharaman, unveiled the National Budget 2021 on February 1, 2021, much to everyone's interest following the COVID-induced economic slump. With her prominent announcements like the 137% jump in healthcare allocations, the construction of major highways, and the divestiture of several banks, she also announced a reduction in customs duties on gold and silver to 7.5% from 12.5%.

Then, what is the impact of the cut in import duty on gold on a commoner and gold vendors?

Impact Of Customs Duty For Gold On The Market

Gold customs duties on precious metals are taxes levied to transport them across international borders. By imposing this tax, the government is raising revenues, regulating good movement, and protecting its domestic industry.

When the government raised customs duty on gold import to 10% in July 2019, gold prices soared from Rs. 3,000 per gram in January to Rs. 3,200 per gram in July. Gold prices increased during the pandemic-induced lockdown, and its demand in the market shattered. There are two main reasons for this market breakdown.

1. Due to the lockdown, the public could not visit jewellery stores to buy ornaments.
2. People in salaried households refrained from buying and investing in gold because of the skyrocketing costs.

Despite its reputation as the world's second-largest gold and silver consumer, gold imports in India decreased by 14.23% during 2019-20. This fact holds because India fulfils its gold demands by importing precious metals from countries like Hong Kong, the UK, Peru, and Bolivia.

Later, the government announced a significant cut in customs duty on gold in India, to everyone's delight, during its 2021 budget declarations. The government aimed to boost the gold demand and revive the economy. In other words, buying these valuable metals from other nations was now more affordable.

With the reduction from 12.5% to 7.5%, the government added an agriculture cess to finance agricultural infrastructure and development. It still amounts to a 2.5% reduction in import duties.

Following the revision of customs duties, gold was more accessible to middle-class and lower-middle-class families. Not only did this regulate the disparity in gold prices in India compared to the international market, but it also curbed illegal gold trade.

The Gold Jewellers Take On The Import Duty Cut

In India, retail jewellers expressed happiness over the gold prices customs duty cut on gold, mainly because they expected to have a good business during the wedding season until mid-July. The pandemic resulted in gold prices reaching an eight-year high, preventing buyers from buying gold jewellery even for weddings. It severely affected the country's gold retailers.

What Should You Do With The Fall In Gold Prices?

Invest! In India, gold is an outstanding investment as the yellow metal is considered auspicious and a symbol of wealth and status. Compared to immovable assets such as real estate, which can be extremely expensive and challenging to acquire for a salary earner, investing in gold is more feasible and has a higher rate of return. Here are some benefits of investing in gold.

• Inflation-Proof Character:

Since gold prices have been unaffected by inflation for a long time, they have been able to withstand inflation. Thus, the global market's inflation and currency rate drops will not incur losses.

• Creation Of Wealth:

Gold, as mentioned above, is regarded as a symbol of wealth and legacy since it is passed from generation to generation in prosperous families.

• Less Risk:

When you invest in gold, as opposed to property, bonds, etc., you will realize it is less risky than other forms of investment.

• Easy Liquidity:

People consider this the most influential factor when investing since it serves as a financial backup in case they need money. In an emergency, gold can be liquidated easily and converted into cash.

You can apply for a gold loan if you have sentimental value attached to your gold jewellery and wish to sell it only partially. Gold loans are a type of secured loan where you pledge your gold jewellery as collateral, and the lender offers you a loan against the gold at an interest rate determined by various factors.

Get A Gold Loan From IIFL Finance

With flexible repayment options and a marginal interest rate, IIFL Finance is an online gold loan company that offers affordable loans. Furthermore, IIFL also has a gold loan calculator on the website that you can use before submitting your application to determine the rate of interest, EMI, and principal balance. Simply go to the official IIFL Finance website and click the apply now button to apply for a gold loan.

Frequently Asked Questions

Q1. What is a gold loan?
Ans. Gold loans are secured loans obtained by pledging gold articles as collateral with a carat range of 18-24.

Q2. What increases the price of gold?
Ans. The drivers of gold prices are supply and demand and investor behaviour.

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