The recent increase in gold import duty is likely to push domestic prices higher and divert a significant portion of supplies to grey markets, according to a report by the State Bank of India (SBI). The report highlights that the duty hike, aimed at curbing imports and narrowing the current account deficit, may have unintended consequences for the formal economy.
Impact on Domestic Prices
The SBI report notes that the higher duty will make gold more expensive for consumers, potentially reducing demand in the short term. However, it warns that the price increase could also fuel smuggling and unofficial trade, as buyers seek cheaper alternatives outside the legal framework. This could undermine the government's efforts to bring transparency to the gold market.
Grey Market Concerns
The report emphasizes that the diversion of supplies to grey markets poses risks to tax revenues and financial stability. It suggests that the government should consider alternative measures to manage gold imports, such as promoting gold monetization schemes or enhancing the ease of doing business for legitimate traders.
Overall, the SBI analysis underscores the need for a balanced policy approach that addresses both economic objectives and market realities.
