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Indian gold-dealers expect cut in import duty

AHMEDABAD:The Indian government is likely to cut duties on gold bullion imports in its budget for 2000/2001 (April-March), traders and bankers said on Monday.

Finance Minister Yashwant Sinha increased the duty on gold imports to 40 percent from 25 percent in January ahead of India's 1999/2000 (April-March) budget to stem surging imports.

"Last time's hike in the import duty on gold has had a negative impact of increased smuggling so this time the government could bring down the duty," said Yashwant Thakkar, a leading gold importer.

Sinha will unveil India's 2000/2001 budget on February 29.

Traders expect the government to reduce the import duty on gold to 30 or 35 percent.

Traders said the increase in the duty had led to an increase in gold coming through unofficial channels. India is the world's largest consumer of gold and imports most of its requirements.

"If they increase the duty, gold imports will fall and smuggling will go up further," a bullion dealer at a leading gold importing bank said in the southern city of Madras.

Data from the industry-funded World Gold Council last week showed India's official gold imports fell to 573.8 tonnes in 1999 from 613.7 tonnes in 1998, but demand rose by three percent.

It said higher local recycling of scrap triggered by the jump in prices made up for the shortfall in the official imports.

Gold is considered an investment in largely rural India and is widely given as gifts at weddings and festivals.

Traders said the government should allow futures trading in gold which would benefit both dealers and customers in India.

"By hedging gold, we will be in a better position to absorb the shocks of price volatility," said Girish Kumar, director of Chokshi Mahajan, a bullion merchants association.

He said spot bullion prices had fluctuated by $40 to $50 an ounce in the last six months, severely hitting demand in India.

Bankers said the government needed to take steps to boost a gold bond scheme which was launched last year.

Under the scheme, banks aim to draw out privately held gold stocks and reduce the country's dependence on imports.

Dealers said the scheme was unlikely to mobilise huge gold stocks unless the goverment granted amnesty to depositors.

Last week, the State Bank of India said it had collected two tonnes gold since the launch of its scheme in November 1999.

It has set the target for collections at 100 tonnes in the first year of the scheme.-Reuters