Budget 2025 may not increase import duty on gold

India’s gold imports surged to record levels in November, significantly contributing to a widening trade deficit and raising concerns for policymakers.

According to the Ministry of Commerce, gold imports hit an all-time high of 173 tonnes for the month, far surpassing figures from previous years. For the financial year to date (April-November), gold imports have risen 49% year-on-year, with 2024 poised to exceed 800 tonnes, well above the average annual imports of around 700 tonnes seen over the last two years.

This surge has added to fiscal pressures, including a depreciation of the Indian rupee, which risks making imports costlier.

One of the key drivers of this surge is believed to be the reduction in gold import duties, sparking debate whether the government might consider increasing them in Budget 2025.

The government’s reduction of import duties from 15% to 6% has incentivised legitimate gold imports, cutting down smuggling. Previously, 150-200 tonnes of gold were smuggled into India annually, much of which now flows through official channels.

However, experts suggest waiting for the December trade and import data before assessing whether the government might consider raising import duties in the upcoming Budget 2025.

Also Read: India’s trade deficit widens in Nov, gold imports hit record high

It must be noted that several other factors also contributed to the surge in gold imports in November:

Festive and wedding demand: The last quarter of the calendar year typically sees heightened gold purchases due to festivals and weddings. This year, the demand has been further boosted by nearly 4.8 million weddings between October and mid-January.

Strong investment appeal: Gold’s 30% return in 2024 has drawn increased investor interest, as individuals look to diversify their portfolios amid global uncertainties.

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Enhanced market transparency: The introduction of hallmark jewellery and growing participation by corporate jewellery players have improved consumer confidence and supported purchases.

While the Ministry of Commerce reported November imports at 173 tonnes, Metals Focus, a leading data provider for the World Gold Council, estimated imports at 136 tonnes. Despite the discrepancy, both figures highlight robust demand.

Also Read | Gold prices may stay firm amid global uncertainty, says HDFC Bank economist