Critical news in the ongoing saga over India’s gold imports this week. Showing that a major return in bullion demand may be closer than anyone was expecting.
The Wall Street Journal broke the story that a long-awaited cut in India’s gold import duties is brewing. With key government officials now pushing for a reduction in these tariffs.
According to the Journal, the pressure is coming from India’s trade ministry. Which has reportedly asked the country’s finance ministry to reduce gold tariffs, according to an unnamed “top official” within the government.
Even more important is the possible scale of the tax cuts. With reports suggesting that the trade ministry is seeking a reduction in tariffs to just 2%. A substantial cut from the current 10% duty.
The move is coming as pressure mounts from India’s bullion and jewellery sector to increase domestic sales. And as I noted last week, demand from consumers seems to back up this sentiment — with gold imports expected to have increased 50% for the fiscal year ending March 31.
If these high-level negotiations prove successful, it would almost certainly be a trigger for gold imports to rise further. After all, imports in the 2011-12 fiscal year were over 1,000 tonnes — and that was at a time when gold prices were running as much as 50% higher than today.
With bullion currently selling much cheaper, a tax cut could spur a lot more buying — and help the global gold price in the process. Watch for news over the next week on a final decision from the finance ministry.