HSBC: Indian Budget Measure Could Hurt Gold Imports

An Indian budget measure could have negative ramifications for the country’s gold imports, says HSBC. “Bullion is Indian’s third-largest import category,” says HSBC in a late-Thursday research note before the Indian government proposed hiking the import duty on gold Friday, as expected. “With India’s trade deficit amounting to more than 8% of GDP, the finance minister has commented on the need to reduce the substantial trade and current-account deficits and has cited gold imports as one reason for the trade deficit,” HSBC says. “An increase in gold tariffs would be conducive to government aims to reduce imports.” Earlier this year, gold did not react to the change in Indian tax rules on bullion from a fixed to a floating rate, the bank says. Nevertheless, “if the government raises tariffs, international gold prices may react negatively, as the second-largest bullion market in the world has additional cost burdens,” HSBC says. “History may argue against an increase in tariffs, however, as previous government attempts to regulate gold imports, such as in the 1980s, tended to result in increases in smuggling.”