The government of India has reduced customs duty on precious metals to deter smuggling. According to the Global Trade Research Initiative, with 2023-24 import levels, this is likely to result in an annual revenue loss of more than Rs 28,000 crore.
In the Union Budget for 2024, Finance Minister Nirmala Sitharaman announced drastic cuts in Basic Customs Duty (BCD) on several sectors, including precious metals. The duty on gold bars was slashed from 15 per cent to 6 per cent; on gold dore, from 14.35 per cent to 5.35 per cent; on platinum, from 15.4 per cent to 6.4 per cent; on silver bars, from 15 per cent to 6 per cent; and on silver dore, from 14.35 per cent to 5.35 per cent.
“The sharp reduction in customs duty on precious metals shall help in containing smuggling and will lead to an annual loss of Rs 28,000 crore to the Centre, at FY24 import levels”, GTRI said. In FY24, India had imported gold of USD 45.54 billion and silver of USD 5.44 billion, while it exported jewelry of USD 13.23 billion.
Ajay Srivastava of GTRI mentioned to a leading paper that a reduction of the Most Favored Nation duty from 15% to 6% forms the basis for calculating revenue loss. He said, “The government has not provided reasons for the tariff cuts, but one possible reason is the large quantities of bullion that were imported at concessional rates using the India-UAE Comprehensive Economic Partnership Agreement”.
More significantly, beyond precious metals, 2024 has seen major BCD reductions in sectors such as electronics, critical minerals, marine, agriculture, chemicals, petrochemicals, drugs, textiles, and leather. Customs duty on several critical minerals has been reduced to nil. These critical minerals include antimony, beryllium, bismuth, cobalt, copper, gallium, and germanium.
India is a net importer of most critical minerals, and zero duty imports would definitely help to foster domestic processing industries. The current scenario is such that 70% of global processing of these minerals is done in China. The duty reductions were thus seen as a deft move for the enhancement of domestic industries, further pushing exports, and slashing dependency on imports.
“The reductions reflect strategic moves to support domestic industries, export businesses, and substitute imports”, GTRI indicated. Whereas the changes open opportunities for growth and development, introduction of careful monitoring and adjustment mechanisms shall be appropriate to avoid misuse and assurance of realization of intended economic benefits.