The surge in gold prices on January 30, 2025, can largely be attributed to the growing speculation about an impending increase in the import duty on gold in India’s upcoming budget. Investors are anticipating that the government might raise the import duty, which could further drive up the prices of the precious metal. With only 48 hours remaining before the budget is presented on February 1, 2025, market sentiment is charged with expectations about potential policy changes.
Gold Prices Hit Historic Highs
On January 30, 2025, gold futures on the Multi Commodity Exchange (MCX) crossed a significant milestone, surpassing Rs 81,000 per ten grams for the first time ever. This sharp rise in prices has raised eyebrows in both the investment and retail sectors, as the price hike coincides with growing speculation about a possible increase in import duties on gold.
What to Expect in the 2025 Budget
The Indian government had previously taken steps to reduce the import duty on gold in the 2024 budget, which brought relief to the gold jewelry industry. The import duty was slashed by a historic 9%, reducing it from 15% to just 6%. This move was seen as a major step to support the industry, but it also led to an unexpected increase in gold imports while failing to significantly boost exports of gems and jewelry.
In contrast, reports suggest that the government may reverse this decision in the 2025 budget by raising the import duty once again. According to a CNBC TV-18 report, the government is considering a hike in the import duty to curb the rising gold imports and stabilize the balance of trade. This speculation has added fuel to the fire, pushing gold prices to new heights.
Impact of the Import Duty Cut in 2024
The decision to reduce the import duty in 2024 had far-reaching consequences. While it led to a sharp increase in gold imports—up by nearly 104% to $10.06 billion in August 2024—exports of gems and jewelry saw a significant decline of over 23% during the same period. This imbalance has reportedly triggered the government’s reevaluation of the current duty structure.
Possible Consequences of an Import Duty Hike
If the government moves forward with increasing the import duty on gold in Budget 2025, it could lead to a further surge in domestic gold prices. With the current import duty set at 6%, any increase could directly affect the cost of gold in the local market, ultimately impacting the jewelry industry and consumers. The import duty on gold is set by the Indian government and implemented through the Central Board of Indirect Taxes and Customs (CBIC). Its primary goal is to control imports and conserve foreign currency, and any changes to this duty are closely monitored for their potential economic impact.
Conclusion
With the budget just around the corner, all eyes are on the government’s potential move to alter the import duty on gold. The rise in gold prices reflects the growing uncertainty in the market, as investors brace for possible policy changes that could influence gold’s future trajectory in India.