Budget Impact - Gold - Outside View by Chirag Mehta

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Budget Impact - Gold
Feb 28, 2011

Customs Duty on Gold remains unchanged

We would like to thank the finance minister for not increasing the customs duty on gold. From the Finance Minister's last two budget speeches and the rationale provided for increasing customs duty on gold during that period, it looked increasingly likely that the customs duty would be raised this time again.

But, the Finance Minister has left the customs duty on gold unchanged. Customs duty on gold is a pass through cost and keeping it unchanged has protected consumers /investors from further increase in prices.

We would have hoped for more measures taken towards development of the gold market for making India the gold trading capital of the world. This could have been done by allowing exports of gold in atleast some restricted manner. But, we reckon that this would be a gradual process and therefore highly appreciate the measure of keeping the customs duty unchanged and not increasing as anticipated.

We note that some of the markets had anticipated the increase in customs duty and had priced in the premium to a certain extent which is now seen reversing.

Branded Jewellery may get more expensive

Central Excise duty of 1 per cent is being imposed in case of jewellery and articles of gold, silver and precious metals, the levy would apply only to goods sold under a brand name. This would increase the cost for buyers of branded jewellery if the same is being completely passed on by the branded jewellery units. Such articles are being sold at a premium; this can increase the cost even further.

We hope that such measures lead to realization that such forms of buying gold for investments are inefficient from a pricing perspective. Investors should probably move towards more efficient products like Gold ETFs as far as investments in gold are concerned.

Chirag Mehta is Fund Manager, Commodities for Quantum Mutual Fund and manages the Quantum Gold Fund ETF and the Quantum Gold Savings Fund among others.

Disclaimer:

The views expressed in this Article are the personal views of the author Chirag Mehta and not views of Quantum Asset Management Company Private Limited(AMC), Quantum Trustee Company Private Limited (Trustee) and Quantum Mutual Fund (Fund). The AMC, Trustee and the Fund may or may not have the same view and DO not endorse this view.

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1 Responses to "Budget Impact - Gold"

SUNIL DOKANIA

Mar 1, 2011

i want to know diffination of branded jewllery in the central excise.

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