Prashant Tejnani, owner of a jewelry store in India’s financial capital Mumbai, said news of the government’s latest tax hike on gold imports sent an initial wave of panic through vendors in the city’s bustling Zaveri Bazaar, or jewelry market – but he expects the impact on demand to be fleeting.
“Gold will always retain its shine in India. An increment of 2 percent will curb demand initially, for one or two months, but once people get used to it, they won’t mind paying the extra,” Tejnani, whose family has been in the jewelry business for 50 years, told CNBC on Tuesday.
Gold is India’s second largest import after oil and has led to an increase in the country’s current account deficit which stood at 5.4 percent of gross domestic product in the July-September quarter. This insatiable appetite for gold led the government to increase the tax on its import to 6 percent, from an earlier 4 percent, on Monday.
India has been actively targeting gold imports over the past year. In March 2012, the government doubled the import duty on the precious metal from 2 to 4 percent, following a tax increase in January.
While the taxes initially helped slow Indian demand, import volumes recovered soon after. For example, gold imports rebounded to 223 tonnes in the third quarter, after falling to 131 tonnes in the previous three months.
Gold, in both bullion and jewelry form, is widely regarded as a store of wealth among Indians of all income groups, and is traditionally gifted during weddings and religious occasions. The precious metal is also seen as an inflation hedge in a country which has been suffering from unabated price increases.
Read More at CNBC . By Ansuya Harjani.