Budget 2021: Gold prices fall after cut in custom duty to 7.5%

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Presenting the Budget 2021, Finance minister Nirmala Sitharaman, proposed to reduce customs duty on gold and silver from 12.5% to 7.5%. In her speech FM said that we are rationalising customs duty on gold and silver, which was raised to 12.5% from 10% in July 2019. Since then prices of precious metals have risen sharply.

Following the announcements, gold futures fell more than Rs 900 at 1.84% and is currently trading at Rs 48,430.

In addition, an Agriculture Infrastructure and Development Cess (AIDC) has also been proposed on import of specified goods, including gold and silver. In her budget speech FM said,” To ensure that imposition of cess does not lead to additional burden in most of these items on the consumer, the Basic Custom Duty (BCD) rates has been lowered. This cess shall be used to finance the improvement of agriculture infrastructure and other development expenditure.”

Somasundaram PR, Managing Director, India, World Gold Council, says, “The rationalisation of import duty on gold to around 10.75% from 12.5% is a welcome move and timely. Hopefully, this is the first of a series of such cuts to make bullion an asset class that operates mainstream. It is a much needed incentive for the organised and compliant players in the bullion and gold jewellery market. A rationalised duty structure and simplified processes are fundamental to an organised trading market.”

Colin Shah, Chairman, GJEPC, agrees, “The reduction in import duty from 12.5 per cent to 7.5 per cent will help the Gem & Jewellery exports become globally competitive. Reduction in duty on raw materials would give the much-needed boost to the sector and help it to move to the next level. In fact, high duty on precious metal had made our exports uncompetitive leading to large Indian diaspora/NRI, moving to Dubai, Hong Kong or other centres to buy jewellery which was largely impacting the employment as well as business in India. Along with this the decrease of import duty on jewellery findings to 10% will help the jewellery manufacturer exporters in a big way.”

This is a big move considering as a country, we import more than 800 tonnes a year, accounting for approximately 25 percent of global demand.

Similarly, customs duty on copper scrap has been reduced from 5% to 2.5% while customs duty on cotton has been hiked from 0% to 10%. The duty on raw silk and silk yarn is also raised from 10% to 15%. To support domestic manufacturing in the solar sector, the duty increased for solar inverters from 5% to 20%.