Import duties for gold bar into India rose Friday, on the back of the start of India's Gold Monetization Scheme (GMS) Thursday, sources told Platts.
The import duty has been raised to Rupees 2,543.33 per 10 grams ($120.32/tr oz) from Rupees 2,511 per 10 grams ($118.79/tr oz), according to several traders and refiners based in India.
Consensus across market participants was that the rise was in line with a stronger Indian gold differential against London spot prices, with regional price differentials rising $9 in the past two weeks.
"The continued rise in the variable import duty is in line with government policy to reduce gold imports and boost gold production from Indian sources. It is part of the GMS policy package," said one dealer.
The goal of the GMS, set out in the government's 2015 budget, is to monetize the 20,000 mt of held gold stocks estimated by the Indian government that are neither traded nor monetized, by allowing depositors of gold to earn interest on holdings.
The move comes after speculation this week that the government was looking to reduce the flat import duty on gold bars from the current 10% rate, with market sources noting that a cut to 8% was likely.
On Wednesday, government ministers presented conflicting information on the flat duty, with the commerce ministry pushing for a cut to 2% import duty although this was rebuked by the finance ministry.
"They represent different parts of the market -- the commerce ministry is looking out for the jewelers, while the finance ministry wants to keep a gauge on the country's GDP," said one banking source. "It's a battle of personalities and popularity."
Traders commented that it was unlikely that the import duty would drop to as low as 2%, stating that it would be out of place with overarching government policy and the GMS disincentives importing gold bars.
"If well adopted, the GMS will completely change the face of India's gold market, and will greatly decrease the volume of imports of gold into the country," said one trader.
The trader added the main fear was that the Indian market would become nationally self-sufficient and "recyclable", as previously consumed gold could be recovered through refining and brought back into the market.
On Thursday, the Indian government introduced the first ever national gold offerings as part of the monetization scheme, launching both gold coin and bullion on top of other GMS measures.
An Edelman statement said the government mandated MMTC, a large importer of gold in India, to launch the products, with the World Gold Council as the marketing associate of the initiative.
"The gold coin and bullion schemes, along with the gold monetization scheme, will give added impetus to organized recycling in India, which will help boost the Indian economy further," said the Edelman statement.
The Platts Gold Premium India was assessed at a $1/oz discount to the London price Friday, unchanged from Thursday, with strong demand heard across India in the lead up to Diwali.
