However, jewellers’ daily requirement for meeting local demand is 40-50 kg gold per day. Since a part of their daily import quota slipped into India through unofficial routes, Nepalese jewellers’ supplies were squeezed further.
Chirag Sheth, a senior consultant at Metal Focus, says: “The Nepal government’s primary motive seems to be curbing the rising unofficial flows into India since the duty differential widened after July this year. The Nepalese currency is pegged to the Indian rupee. The authorities there were worried about the negative impact of rising gold imports (partly for smuggling
to India) on Nepal’s current account.”
Huge quantities of gold were being unofficially brought into Nepal from China, and part of that was finding its way into India. Going by official estimates, only half of their gold requirement was reaching Nepalese jewellers.
From India’s point of view, the move is significant because the country has also seen a sharp jump in gold smuggling, especially since it raised the import duty on gold to 12.5 per cent in July this year. Last year, India was estimated to have received over 100 tonnes of smuggled gold. In the four months since July, thanks to a sharp jump in prices, gold import has been around 120 tonnes — only 30-35 per cent of that for domestic consumption. Reduced demand has also hit smuggling
in absolute terms.
Nepal last week also increased import duty on silver from NPR 56 per 10 gram to NPR 75 per 10g.
After India’s July decision of increasing import duty on precious metals
to 12.5 per cent, the duty differential between the two countries had widened. Based on the revised duty rates and the prevailing gold prices
in Nepal, the current duty is effectively between 10.5 per cent and 11.5 per cent in that country. However, following Nepal’s duty hike, gold demand there is also expected to fall in line with the decline seen in India.