The hike in customs duty on gold is likely to push up gold prices

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besides resulting in an increase in smuggling of the yellow metal into the country, industry experts say.

Finance minister Pranab Mukherjee in his budget has increased customs duty on gold and platinum from Rs 200 per 10 gm to Rs 300 per 10 gm and that on silver to Rs 1,000 per kg to Rs 1,500 per kg.

“The duty hike will have a cascading effect and gold prices will go up by

Rs 130 per 10 gm. The increase in duty of gold will also increase smuggling of metal, which has been under control for quite some time. While the jewellery industry was looking forward for specific announcements like zero import duty to attract gold trade from hubs like Dubai, this move is disappointing. The government seems not to have understood the country’s potential in gold trade,” said Vinod Hayagriv, chairman of All India Gem and Jewellery Trade Federation.

The government has increased the duties on gold imports for two consecutive times and this trend is of some concern for the industry, said Ajay Mitra, managing director of India of World Gold Council.

Gold imports have been low in 2009 by over 40 per cent and some recovery has been in sight only during the past two quarters. “While this will impact consumption further, gold may also attract some silver buyers because the import duty in the white metal has gone up by 50 per cent,” he said. The exchange and recycling of old gold also might increase because it would become a better alternative to imports.

“As there is not enough margin in jewellery making, increase in the custom duty on gold, platinum and silver has made the jewellery industry a bit disappointed,” said Tinku Singh, president, SRS Jewels.

However, to encourage domestic refining capacity for gold, the budget has proposed the reduction of the basic customs duty on gold ore and concentrates from 2 per cent ad valorem to a specific duty of Rs 140 per 10 gm of gold content with full exemption from special additional duty.