New provisions in the Narendra Modi-led government's 2021-2022 budget have brought down the import duty on gold and silver by 5 percent, ensuring that the rates of these precious metals decline.
Currently, gold attracts 12.5 percent import duties, but the central government has now announced a cut of 7.5 on gold and silver.
"Since the duty was raised from 10 percent in July 2019, prices of precious metals have risen sharply and to bring it closer to previous levels, we are rationalising custom duty on gold and silver", Finance Minister Nirmala Sitharaman stated during the annual budget presentation on 1 February.
But at the same time, the government is eyeing Indians' strong liking for gold to mop up funds for development in the agricultural sector by imposing a new 2.5 percent Agriculture Infrastructure and Development Cess.
Sitharaman said that there was an immediate need to improve agricultural infrastructure to "produce more, while also conserving and processing agricultural output efficiently. This will ensure enhanced remuneration for our farmers".
The Agriculture and Infrastructure Development Cess will be levied on other items including alcoholic beverages, gold & silver dore bars, crude palm oil, crude soyabean oil, peas, and apples.
The government is hoping to rake in about $4 billion from the new tax.
Finance Secretary Ajay Bhushan Pandey said, "We have imposed an agri cess on about 14-15 items".
We are expecting Rs 30,000 crores through Agriculture Infrastructure and Development Cess. This cess has been designed such a manner that it won't impact common man: Finance Secretary AB Pandey pic.twitter.com/As9IgaWLeu— ANI (@ANI) February 1, 2021
About 1,000 more agriculture markets are planned to be integrated with the electronic national market and the Agri Infra Fund will also be made available to augment infrastructure facilities.
Why Gold Matters So Much in India
Giving gold as a gift to newlyweds is a deeply ingrained part of marriage rituals in many parts of India.
The World Gold Council estimates that 50 percent of annual gold demand is generated by weddings alone. Offering gold to deities in temples is also considered highly auspicious, and temples in India are believed to be holding about 4,000 tonnes of gold.
Since buying gold requires no documents, it is a preferred choice for converting black money.
The Indian government launched the Gold Monetisation Scheme to lure people into bringing the gold out of their houses and put it in banks for high interest rates.
However, the scheme did not garner much of a response, as it required the jewellery to be melted down to ascertain its true value which did not find acceptance with women who cherish a deep sentimental value for their ornaments.