Aided glitter

EDITORIAL

Customs duty waiver adds to the blues unfettered gold imports cause
Article Date: 
Dec 02 2012, 2157

The debate whether or not to restrict gold imports can only get more intense in the coming weeks as macro-economic concerns about the burgeoning current account and the rupee appreciation mount. A panel discussion on banking and other economic matters at the weekend brought together the incumbent RBI governor as well as three men who held the position earlier. Two of the latter thought it fit to dissuade the government from curbing gold imports and the third offered no comments. The incumbent governor voiced RBI’s wish to see gold imports controlled. C Rangarjan, one of the former RBI governors who is now chairman of the prime minister’s economic advisory council, was the most vocal against curbs. He thought curbs were ineffective in the fight against the deep-rooted propensity of Indians to buy and possess gold. He quoted unnamed revenue department sources as claiming that smuggled gold seizures had been higher than normal in the past three months due to an increase in excise duty on the metal yellow gold. Y V Reddy, another former RBI governor, responded by saying that none knew the history of India’s gold management better than Rangarajan, but there was another equally important side of the story. This side was well articulated by incumbent governor D Subbarao, who said RBI was concerned about gold and lending against gold by non-bank finance companies. He reasoned that besides heightened worries about financial stability, this put pressure on the current and/or capital account. Gold imports have gone up sharply in the past year and contributed significantly to the widening gap between rising imports, led by petroleum products and gold, and stagnating exports. So, it is perfectly in order to debate whether this is a direct result of our propensity to hoarding gold. Doubtless a rapidly widening current account deficit hurts our economy. But the point is nobody seems to question the fiscal concessions that push gold imports. The import tariff on gold and other precious metals, whether domestically consumed or meant for re-exports is 10 per cent. But for a large part of the past couple of decades the duty has been waived in full, allowing for imports at zero customs duty. Few other imported products enjoy this benefit. This certainly promotes a gold rush. Thus, Reddy raises a valid question when he says that if Mercedes Benz cars and aftershave lotions are imported after paying duty, why is gold allowed in at zero duty. The odd thing is that gold is imported without payment of any duty or at extremely low duty in the name of “public interest”. This is a stated reason in the customs department’s relevant notification. Forget the impact that unfettered free import of gold has had on the current account deficit, think about the loss caused to the exchequer. The loss is stunning: In 2011-12 customs duty forgone on gold and diamonds was Rs 57,000 crore, and this was 15 per cent higher than the revenue forgone in the preceding year. This is a prominent and almost permanent item in the government’s laundry list of goods that enjoy the highest levels of tax incentives, and which results in the highest quantum of revenues forgone. Restricting gold imports may not serve the purpose of unhindered flow of trade. But there is a case for immediately withdrawing, at the very least, the unjust concession that gold imports have been enjoying.

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