Rising demand for gold affects India’s trade deficit
Increasing demand for gold: The Union Budget 2024-25 promises significant changes across various sectors, with key announcements including substantial reduction in customs duty on cancer drugs, mobile phones, silver, gold, leather goods and seafood. “The government will exempt three more cancer treatment drugs from customs duty. We are also reducing basic customs duty on mobile phones, chargers and other mobile components,” Sitharaman said while presenting Budget 2024 in Parliament on Tuesday. The 6% reduction in customs duty on gold and silver is expected to boost retail demand and help ease smuggling issues in the world’s second-largest bullion consumer. However, the rising demand for gold could impact India’s trade deficit and put additional pressure on the rupee.
Increasing demand for gold impacts India’s trade deficitLet’s see if mobile phones will get cheaper: The Finance Minister has announced a 15% reduction in basic customs duty on mobile phones and chargers. In her speech, she said, “With a three-fold increase in domestic production in the last six years and a nearly 100-fold jump in exports of mobile phones, the Indian mobile industry has matured. In the interest of consumers, I now propose to reduce the basic customs duty (BCD) on mobile phones, mobile PCBAs and mobile chargers to 15%.” Gold, silver and platinum: The Budget proposes to reduce customs duty on gold and silver to 6%. It also promises to reduce customs duty on platinum to 6.4%. “To enhance domestic value addition in gold and precious metal jewellery in the country, I propose to reduce customs duty on gold and silver to 6 per cent and on platinum to 6.4%,” the finance minister said in the Budget 2024 speech.
” Cancer drugs: Three cancer drugs – trastuzumab deruxtecan, osimertinib and durvalumab – will be exempt from customs duty to provide relief to patients. Trastuzumab deruxtecan is used for certain types of breast cancer and works by delivering chemotherapy directly to cancer cells. Osimertinib is used for a type of lung cancer with specific gene mutations and helps stop the growth of cancer cells. Durvalumab is an immunotherapy drug used for lung and bladder cancer, which helps the immune system attack cancer cells. The National Cancer Registry Programme (NCRP) highlights the overall cancer burden in India, which shows that about 1 in 9 people will develop cancer in their lifetime. Health experts have said the move is expected to make medicines more affordable for cancer patients.
Seafood: Finance Minister Nirmala Sitharaman said the government will provide finance for shrimp farming and marketing while presenting the Union Budget 2024-25. She said the government has reduced the basic customs duty on shrimp to 5%.
Solar energy part: The government has proposed to expand the list of exempted capital goods for manufacturing of solar cells and panels, which will give a boost to the renewable energy sector.
Critical minerals: The finance minister announced a full exemption in customs duty on 25 critical minerals, including lithium, copper, cobalt and rare earth elements, which are important for sectors such as renewable energy and high-tech electronics. Basic customs duty will also be reduced on two of these minerals. Basic customs duty on these materials will be removed, which will help the manufacturing sector.
Footwear: Customs duty on leather and footwear manufacturing will be reduced.
Why customs duty has been reduced
Customs duty on gold and silver has been reduced to 6%, which may lead to a drop in domestic prices and perhaps even increase demand. The current duty on gold and silver is 15%, which includes 10% of basic customs duty and 5% as agriculture infrastructure development cess. Gold prices stood at Rs 72,838 per 10 gram on MCX on Tuesday, hitting an intraday low of Rs 68,500.
The customs duty exemption on cancer drugs has been done to reduce the cost of cancer treatment in India. The Union Minister also reduced customs duty on X-ray tubes used in medical X-ray machines. The existing duty of 15% will be reduced to 5% till March 31, 2025. Thereafter, the duty will increase to 7.5% from April 1, 2025 to March 31, 2026 and then to 10% from April 1, 2026.
The reduction in basic customs duty on mobile phones will boost domestic production. Smartphone manufacturing is a key plank of Prime Minister Narendra Modi’s ambitions to boost the Indian economy and create jobs by attracting companies such as Apple, Foxconn and Samsung to India, the world’s second-largest mobile market, where production grew 16% last year to $44 billion. At the start of her budget speech, the finance minister said the country
