After Finance Minister Nirmala Sitharaman proposed to cut import duty on gold while presenting the Union Budget 2021 on Monday, gold prices plunged. Shares of jewelers, on the other hand, surged.
Nirmala Sithraman proposed to reduce the duty on gold and silver from 12.5 percent to 7.5 percent, to meet industry demand. Furthermore, she also proposed the Agriculture infrastructure and development cess at a 2.5 percent rate.
Gold futures pared with morning gains and were trading at Rs 47,939 per 10 gram, which was down nearly by Rs 1,800 from Monday’s high. It was down by at least 2.83 percent from the previous close.
Following this announcement, shares of companies that were involved in the trade of precious metals increased. For example, Titan was up by 5 percent to Rs 1,491, while PC Jeweller was up by 6 percent and Vaibhav Global was up by 7 percent. Other jewelers and traders of gemstones have also risen in tandem.
The industry has been demanding a reduction in import duty on gold and GST to 7 percent in order to curb the large-scale gold smuggling in the country, to boost the gold trade, and strengthen the demand for gold jewelry. The cut in import duty that has been proposed has been an old demand from the industry.
At present, the gold attracts a 12.5 percent import duty, and that was raised by 250 basis points in 2019. Apart from this, the government also levies three percent GST. Along with this, total duty and GST implication work out at around 15.5 percent.
In the last year, due to the safe-haven buying by certain investors, gold and silver prices have increased significantly. However, due to the pandemic, caused by Cvid-19, imports of gold dropped significantly in the year 2020.
