India's federal budget recently slashed the import duty on gold from 15% to 6%, leading to a significant increase in gold demand across the country. This reduction aims to curb gold smuggling and has resulted in retail gold prices falling by approximately 9%. The timing of this duty cut coincides with rising uncertainty surrounding the upcoming US elections and potential Federal Reserve interest rate cuts, driving investors towards gold as a safe-haven asset [07dc08c3].
The surge in gold demand is particularly notable during a typically slow season, as the upcoming wedding season is expected to further boost interest in gold purchases. The World Gold Council has reported increased activity in the gold options market, indicating a robust market response despite global volatility [07dc08c3].
In addition to the import duty cut, the Union ministry of finance has revised and increased the duty drawback rates on gold and silver, benefiting the gem and jewellery industry. The rate for gold has been raised from Rs 431.1 to Rs 704.1 per gram, while the rate for silver has been increased from Rs 4,105.6 to Rs 8,949 per kg. This revision allows exporters to receive higher returns on duty and taxes paid for raw materials, thereby reducing costs and enhancing the appeal of products in international markets [5f323a3e].
Despite the positive sentiment in the gold market, some incoming gold shipments have faced delays as customs officials await clarity on the new tax regime. However, the easing of inflation pressures and the stabilization of the Indian rupee are making gold imports more favorable [07dc08c3].
Meanwhile, the directorate general of foreign trade (DGFT) has imposed import restrictions on certain types of studded gold jewellery from countries like Indonesia and Tanzania. These import curbs were implemented on June 11 to discourage inbound shipments of these items, although they do not apply to SEZ (Special Economic Zone) units [de7cbe31].
Tariff concessions on gold have also become a sticking point in India's free trade agreement (FTA) negotiations with Peru. These concessions accounted for $1.8 million or 80% of India's imports from Peru in FY23. India's bound duty on gold stands at 40%, but the current applied tariff is at 10%. The next round of negotiations is scheduled for February 12, 2024 [e6778742].
According to an economic think tank, duty concessions on gold are the most challenging issue for India in the proposed FTA with Peru. The negotiations for the agreement between India and Peru began in 2017, and the fifth round concluded in August 2019. During 2022-23, the bilateral trade between India and Peru stood at $3.12 billion, with India exporting goods worth $865.91 million and importing goods valued at $2.25 billion [91d1d31a].
In another development, Uzbekistan has proposed establishing a zero customs duty rate for jewelry produced in the country and exported to the United States under the Generalized System of Preferences (GSP). This proposal aims to increase jewelry export volumes and enhance the competitiveness of Uzbek jewelry in the global market. President Shavkat Mirziyoyev has directed relevant authorities to finalize these measures and develop a detailed program for the development of domestic jewelry production until 2027 [b2a19f3c].