India’s Trade Minister, Nirmala Sitharaman, said Wednesday that the country was not considering a cut in import duties for gold. This extends a policy that has made progress in narrowing the country’s trade deficit but has led to a rampant increase in illegal gold smuggling.
“Yes, the current account deficit has come down. But immediately, there is no plan to reduce import duty” Sitharaman told reporters.
Last year, the government of New Delhi raised the import taxes from 2% to 10%, a move that has helped restore confidence in the country’s economy.
But officials at the airport in Mumbai have reported the highest number of gold confiscations in almost twenty years. “In the first 6 months of 2014, 535 kilograms (18,872 ounces) of gold have been seized. The total is expected to pass 1,000 kilograms by year’s end.”
India is just entering its festival season which traditionally sees an increase in the physical demand for gold due to its use as ceremonial jewelry and because it is commonly given as gifts during celebrations.
Some precious metals analysts believe that in addition to the rise in small and medium-scale smuggling of gold, there is likely to be illegal large-scale importing of the precious metal to be taking place as well. If this were the case, the trade data would be severely flawed. Reuters reports that gold imports for the 2nd quarter of 2014 are almost half of what they were for 2013. Even with the increased duties, the reduced numbers don’t match up.
India is the world’s second-largest consumer of gold behind China, another country that recently began to obscure the amount of gold it is importing.