Niti Aayog panel mulls sharp cut in gold import duty to boost demand, curb smuggling

In an attempt to regularise and transform the gold market in India, government think tank Niti Aayog has come up with a slew of recommendations, including lowering of import duty on gold, setting up of jewellery parks and making mining viable.

A committee, headed by former Union finance secretary and NITI Aayog principal advisor Ratan P Watal, said that the gold business in India requires a major revamp, including significant tax cuts to sustain over the long term. It also said that lowering of import duty and goods and services tax (GST) rates is crucial at this stage.

Sources told news dailies that reports of rampant illegal gold imports prompted the panel to recommend a change in the tax structure. In the past year, over 150 tonnes of the yellow metal was allegedly smuggled into the country. The government levies an import duty of 9.35% on gold dore, or unrefined gold.

The committee also said that changes in tax policies could help bring the largely unregulated sector within the formal economy. "Such an initiative can be taken after rationalising the import duty on gold and gold dore. It would remove the arbitrage between Indian and international gold prices, thus putting a check on smuggling," it said.

The committee also recommended to set up a Gold Board with powers to resolve issues, besides stressing on the need of mining to marketing of gold to sourcing of unrefined gold and others.

"Gold mining should be made attractive and we should ensure that there are considerable gold reserves in India. This can lead to creation of more employment opportunities in rural areas, make domestic supply of gold more robust and reduce the extent of gold that needs to be imported," the report added.

The committee noted that financialisation of the metal and encouragement of  digital payments can bring transparency in transactions and contribute to the country's savings rate.

"Financialisation will help integrate the existing above-ground stocks of gold into the financial system. It will also ensure that all future investment demand for gold is made in financial products. Also, it will verify the real value of an individual's gold holdings, which can help in getting loan against gold jewellery."

The committee proposed revamping the gold monetisation scheme (GMS) and suggested that all banks and their branches offer the service by reducing minimum quantity of gold to be offered by customers under the GMS.

To make the proposal under GMS attractive for banks, it recommended linking gold metal loans with international lease rates.