Budget Impact - Gold

Customs Duty on Gold remains unchanged

We would like to thank the finance minister for not increasing the customs duty on gold. From the Finance Minister's last two budget speeches and the rationale provided for increasing customs duty on gold during that period, it looked increasingly likely that the customs duty would be raised this time again.

But, the Finance Minister has left thecustoms duty on goldunchanged. Customs duty on gold is a pass through cost and keeping it unchanged has protected consumers /investors from further increase in prices.

We would have hoped for more measures taken towards development of the gold market for making India the gold trading capital of the world. This could have been done by allowing exports of gold in atleast some restricted manner. But, we reckon that this would be a gradual process and therefore highly appreciate the measure of keeping the customs duty unchanged and not increasing as anticipated.

We note that some of the markets had anticipated the increase in customs duty and had priced in the premium to a certain extent which is now seen reversing.

Branded Jewellery may get more expensive

Central Excise duty of 1 per cent is being imposed in case of jewellery and articles of gold, silver and precious metals, the levy would apply only to goods sold under a brand name. This would increase the cost for buyers of branded jewellery if the same is being completely passed on by the branded jewellery units. Such articles are being sold at a premium; this can increase the cost even further.

We hope that such measures lead to realization that such forms of buying gold for investments are inefficient from a pricing perspective. Investors should probably move towards more efficient products like Gold ETFsas far as investments in gold are concerned.

Disclaimer:
The Golden Truth is authored by Chirag Mehta. Chirag is Fund Manager - Commodities at Quantum Mutual Fund. Views expressed in this article are entirely those of the author and should not be regarded as views of Quantum Mutual Fund, Quantum Asset Management Company Private Limited and Equitymaster. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Equitymaster has not verified the facts contained in this column and it does not accept any responsibility for the same. Please read the detailedTerms of Useof the web site.