January 22, 2013 / 8:59 AM / 5 years ago

UPDATE 2-India targets alloy in 2nd gold duty hike this week

* Duty up a day after tariff hike on refined gold
    * Refiners still see duty advantage for dore
    * Smuggling could increase after tripling in 2012
    * Government likely to assess impact before further moves

 (Adds quotes, details)
    By Siddesh Mayenkar
    MUMBAI, Jan 22 (Reuters) - India more than doubled duties on
gold alloy on Tuesday, hard on the heels of a tariff rise for
refined gold, as New Delhi tries to curb demand in the world's
biggest bullion importer and rein in a record current account
deficit.
    India's gold imports are set to break through a target
ceiling of $38 billion in the year to March 31, 2013, tying up
funds in what New Delhi sees as non-productive investment.
    Industry experts say the moves are unlikely to have much of
a long-term impact on demand, which is driven by tradition and
inflation, but for now the government is expected to hold off
further measures as it waits to see their effect on buying.
    "I don't see any further restriction in the immediate future
as the government will be waiting to see the impact on the CAD
(current account deficit)," said Daman Prakash Rathod, a
director with Chennai-based wholesaler MNC Bullion.
    In the latest move, India hiked the import duty on gold dore
bars to 5 percent from 2 percent. Dore, an alloy of gold and
silver used by refineries, accounts for about 100 tonnes or
about 12 percent of India's annual imports.
    The move came one day after the government raised the import
tax on refined gold to 6 percent from 4 percent and instituted
incentives for gold savings schemes and to bring more gold into
circulation.
    "The measures should help cut gold imports significantly,"
said a senior finance ministry official who declined to be
named, but he stopped short of quantifying the size of decline.
    
    
    REFINERS, WEDDINGS, SMUGGLING
    Tuesday's move helps close an arbitrage between dore and
refined gold, which opened up last year when the government
hiked the gold import duty to 4 percent. 
    But some industry officials said the cost difference,
although narrower, would still attract domestic refiners.
    "There won't be much impact. Dore imports will increase day
by day. The difference of 1 percent will attract refiners," said
Harmesh Arora, a director with the Bombay Bullion Association.
    The roughly 700 tonnes of India's annual imports "can be
totally converted into the dore market", he said.
    India's total annual gold consumption is about 900 to 1,000
tonnes, and the difference is made up mostly from recycling.
    Finance Minister P. Chidambaram earlier this month appealed
to Indians to moderate their demand for gold, but buyers instead
gobbled up a month's worth in a few days - about 50 tonnes - as
they saw a duty increase coming.
    Indians see gold, both bars and jewellery, as an investment
against high inflation, especially in rural areas where banks
are practically non-existent and meagre savings rates add to
bullion's lustre.
    The tax increases had an immediate impact on Tuesday, Rathod
said. "No one is asking (to buy) even a gram of gold. But
eventually Indian people will get used to it (the new tax
levels)."
    Analysts said the government's moves might have more impact
on investment buying, which is about 35 percent of demand, while
the jewellery market is likely to be more resilient, especially
in the winter wedding season when brides are weighed down with
golden dowries.
    "Given India's penchant for gold for weddings and other
religious ceremonies, a sharp fall in volumes is unlikely,"
Nomura analysts wrote in a note after Monday's duty hike.
    The danger also remains that hiking duties could encourage
smuggling, which has tripled since the import duty on gold was
last raised in 2012.
    The customs duty on 100 grams refined gold will amount to
18,000 rupees ($330), which is equal to a return ticket to
Dubai, Rathod said.
 ($1 = 53.8650 Indian rupees)

 (Additonal reporting by Manoj Kumar in NEW DELHI & Rujun Shen
in SINGAPORE; Editing by Ed Davies)

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