The government has hiked gold import duty to 15 per cent from 10.75 per cent to check the current account deficit (CAD) and rising import of the yellow metal.
The duty changes came into effect on June 30. Earlier, the basic customs duty on gold was 7.5 per cent, now it will be 12.5 per cent. Along with the agriculture infrastructure development cess (AIDC) of 2.5 per cent, the effective gold customs duty will be 15 per cent.
Finance Minister Nirmala Sitharaman said India does not produce much gold. So, the import of yellow metal put stress on the country's forex.
"Gold is inelastic in its demand. So, you would want to see whether you can at least try to discourage to that extent people importing. Or if you are importing and you still want to import, please pay up that much more so that country can have some revenue," she said.
There has been a sudden surge in imports of gold. In May, a total of 107 tonnes of gold was imported and in June also, it was significant. The surge in gold imports is putting pressure on the current account deficit, the finance ministry said.
With the outflow of foreign portfolio investment and costlier imports, the foreign exchange reserve of the country has seen a decline.
Since the war in Ukraine broke out in late February, the RBI has expended its foreign exchange reserves in order to shield the rupee from steep depreciation. Since February 25, the headline foreign exchange reserves have declined by $40.94 billion.
The current account deficit (CAD) is expected to widen to 3 per cent of GDP in FY23 against 1.2 per cent in the previous fiscal.