Gold Duty Hike May Help India’s Current Account, Higher Crude Prices Still Remain Biggest Risk
· Free Press Journal
Mumbai: The Centre’s decision to raise gold import duty to 15% could help India reduce pressure on its current account deficit (CAD), according to a report by Emkay Global Financial Services.
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The brokerage said the move may improve the current account by nearly 23 basis points as higher import duty could reduce gold imports into the country. India is one of the world’s biggest gold buyers, and large imports often increase pressure on the trade deficit and the rupee.
The report said the government is taking defensive steps to maintain financial stability at a time when global crude oil prices remain high and geopolitical tensions continue to impact markets.
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While the gold duty hike may offer some relief, Emkay warned that expensive crude oil remains the biggest challenge for the Indian economy.
The brokerage said markets have partly priced in post-war stability, but crude prices staying in the USD 100–110 per barrel range could create fresh stress. If the energy shock continues for a longer period, the Nifty index could slip towards the 21,000 level.
The report also said petrol and diesel price hikes in India now appear likely. Retail fuel under-recoveries are estimated at nearly Rs 17–18 per litre. A Rs 10 per litre increase in fuel prices may recover only about half of the losses.
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According to the report, higher fuel prices may push retail inflation closer to 4.4 percent in June. This could increase the possibility of another interest rate hike by the Reserve Bank of India.
At the same time, the higher gold import duty may negatively affect jewellery companies and slightly increase consumer inflation.
Possible Measures To Support Rupee
Emkay said a possible US-Iran agreement in the coming weeks may cool crude prices and reduce pressure on India. However, if oil prices remain elevated, policymakers may consider additional measures such as currency market intervention, overseas bond schemes, special deposit schemes, or tighter overseas remittance rules.
The brokerage added that overseas remittances by Indians have grown strongly over the last five years and now exceed the current account deficit by 174 percent. Existing restrictions, including 20 percent TCS on overseas remittances above Rs 10 lakh, may also help support the rupee.