The newly elected India government came to power on the premise they would reduce or eliminate the unpopular gold and silver import tax. Although the Modi government has loosened restrictions on gold imports the import taxes remain.
The import tax was introduced 2013 in an attempt to reduce the Indian current account deficit and protect the value of the Indian rupee. The taxes have proven successful in reducing gold imports, however, the Indian current account deficit remains stubbornly high.
The Indian Central Bank has a target of keeping the current account deficit below 2% of GDP in 2014. Economists forecast this would be difficult to achieve if import taxes are eliminated which has led many to conclude the taxes will remain.
Gold is an integral part of Indian culture and is given as gifts at wedding, birthdays and religious festivals. Prior to the introduction of the tax India was the world’s largest import consumer of gold.