India has increased the duty on gold imports for the second time in six months, in an attempt to rein in surging demand for the precious metal. The finance ministry said it had raised the duty to 8% from 6%. Gold is a preferred investment option among Indian consumers and the recent drop in its price has boosted demand.
But gold imports are also one of the biggest contributors to India's current account deficit, which has been rising, prompting concerns among policymakers. A current account deficit, which is the difference between inflow and outflow of foreign currency, occurs when a country's total imports are greater than its exports.
A rising deficit impacts the country's foreign exchange reserves as well as the value of its currency. India's current account deficit hit a record high of 6.7% of its gross domestic product (GDP) in the October to December quarter. The government has been trying to bring down the deficit and improve the country's finances amid threats of a downgrade in its ratings. Read more >>