India raises import duty on raw gold to 5 percent

MUMBAI (Reuters) - India more than doubled the import duty on gold dore bars and ores on Tuesday, hard on the heels of a hike in taxes on refined gold, as the government tries to curb demand in the world's biggest importer of bullion and rein in a record current account deficit.

India, whose gold imports total about 800 tonnes a year, hiked the import duty on gold dore bars to 5 percent from 2 percent. Dore, an alloy of gold and silver that is used by refineries to produce pure gold, accounts for about 100 tonnes of annual imports.

The move came one day after the government increased import tax on gold to 6 percent from 4 percent, aiming at closing the gap on import duties on bullion bars and dore, which had become an attractive import since last year after the government hiked tax on gold imports to 4 percent.

"It was a duty arbitrage that they have plugged," said Shekhar Bhandari, executive vice president of treasury at Kotak Mahindra Bank. "Otherwise people would not import through normal channels but import dore bars."

Most of the dore imports are bought by state-run MMTC (MMTC.NS), PAMP and Rajesh Exports (REXP.NS).

But some industry officials said the narrowed difference would still attract domestic refiners.

"There won't be much impact. Dore imports will increase day by day. The difference of one percent will attract refiners," said Harmesh Arora, director with the Bombay Bullion Association, a trade body.

Arora said refiners have been trying to tap small miners in Ghana, Kenya and other African countries for dore bars

Gold mines often process their gold-bearing ore on site and send dore bars to gold refineries to be processed into tradeable bars of high purity at 99.5 percent gold content or more.

"If there is 700 tonnes of imports for the Indian market, this can be totally converted into dore market," said Arora.

India's total annual gold consumption is about 900-1,000 tonnes and the difference is made up mostly from recycling.

Rising imports of gold have worried the government, which is battling a record high current account deficit. It is trying to curb gold imports to about $38 billion in the year to March 31, 2013, down from $58 billion a year earlier.

(Reporting by Siddesh Mayenkar; additional reporting by Rujun Shen in SINGAPORE; Editing by Ed Davies)