Budget 2024's Bold Move to Eradicate Gold Smuggling

Significant Duty Reduction

The Union Budget 2024 has brought a revolutionary change in India's gold import policy. Until now, gold imports carried a 10% customs duty along with a 5% agricultural cess. The new budget has reduced the customs duty by 5% and the agricultural cess from 5% to just 1%, effectively bringing the total duty down from 15% to 6%.

Market Reaction

Tuesday proved monumental for the jewelry market, which has been advocating for lower import duties on gold for a decade. Union Finance Minister Nirmala Sitharaman's announcement of this substantial reduction was initially met with disbelief by traders. This relief from high customs duty has been welcomed by the customs department as well, which faced increasing challenges due to the surge in gold smuggling in Uttar Pradesh.

Impact on Smuggling

This decisive reduction is expected to significantly curb gold smuggling, which saw an astonishing seven-fold increase in the state. Smuggling operations are driven by the high profit margins made possible by the previous high duties. With the duty reduced, profits from smuggling will drop from 10% to just 1-2%, making the risk unworthy for smugglers.

Economic Benefits

The reduction in duty aligns Indian gold prices more closely with international rates, particularly with Dubai, where gold is duty-free and considerably cheaper. This change is expected to reduce illegal gold trade, channeling more transactions through legal avenues, and thus benefiting the economy.

Industry Reactions

Mahesh Chandra Jain, President of the Uttar Pradesh Bullion Association, expressed his satisfaction, saying that the long wait for this reform has finally paid off. He anticipates a cleaner, more transparent trade environment. Pankaj Arora, President of the All India Goldsmith and Jewellers Federation, noted that while the states of Maharashtra, Tamil Nadu, and Kerala had previously reported the majority of smuggling cases, Uttar Pradesh had recently seen a sharp rise in such incidents, which are expected to decline sharply with this new policy.

Market Price Adjustments

Following the announcement, gold prices witnessed a significant drop. On the MCX, gold prices fell by ₹4,000 per 10 grams. The market price also saw a drop from ₹73,500 to ₹71,000 per 10 grams, while silver prices also fell notably.