The government held its gold import duty unchanged in Thursday's budget, defying industry expectations that the world's biggest bullion buyer would increase rates to curb demand and rein in a record current account deficit (CAD).
The government could still raise the duty if imports do not ease in response to a January hike to 6 per cent from 4 per cent. Traders had expected the budget to usher in a levy of 8 per cent.
"It is good the government has not imposed any restrictions or any further duty hike on bullion," said Prithviraj Kothari, director of RiddiSiddhi Bullions Ltd, whose imports of 100 tonnes of the precious metal accounted for about a tenth of India's total last year.
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"If any data shows a further increase in CAD, they might hike the import duty," he added.
India, the world's top gold consumer, imports almost all it needs. Gold imports have already surpassed $38 billion, the forecast a year ago for the entire fiscal year to March 31, and Finance Minister P Chidambaram has urged Indians to moderate buying to reduce pressure on the rupee.
Recent falls in gold prices have undermined Mr Chidambaram's efforts. Domestic gold prices have dropped about 3 per cent since January 21, when the government hiked import duties. Demand jumped on Wednesday as buyers hoped to pre-empt any budget duty hike.
India's imports of gold, second only to oil in value, contributed to a widening of the CAD to a record high 5.4 per cent of gross domestic product (GDP) in the July-September quarter of the current fiscal year to March 2013.
A safe level for the CAD would be 2.5 per cent to 3 per cent of GDP, Prime Minister Manmohan Singh said after Mr Chidambaram announced the budget.
Copyright @ Thomson Reuters 2013
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