Justifying the hike in customs duty on gold in the Budget, Finance Minister Pranab Mukherjee on Tuesday said its huge imports cause strain on the balance of payment and affect exchange rate, but it does not have any direct bearing on the forex reserve.
India's gold and silver imports during first 11 months of the current fiscal stood at USD 54.5 billion. It had imported gold worth USD 40.5 billion and silver worth USD 1.9 billion in the last fiscal.
"The import of gold of such magnitude strains balance of payments and affects exchange rate of rupee through impacting supply-demand balance of foreign exchange," Finance Minister Pranab Mukherjee said in the Rajya Sabha during Question Hour.
However, he added that such imports do not have a direct bearing on foreign exchange reserves, as RBI intervenes in the foreign exchange market through purchase/sale
Meanwhile, to lower the impact of gold imports on balance of payment, Mukherjee has proposed to increase basic customs duty on standard gold bars, gold coins of purity exceeding 99.5 per cent and platinum from two per cent to four per cent and on non-standard gold from five per cent to 10 per cent.
To a question, he said the quality of country's gold bearing ore was "extremely poor" and as a result, it becomes uncompetitive to mine such ores to produce the precious metal indigenously.
India has around 30 gold mines. Each tonne of Indian gold bearing ore yields only 22 gms of gold, Mukherjee said, adding that experts opine that unless each tonne ore does not produce 45-50 gms of gold, then the exercise becomes uncompetitive.
India produces around two tonnes of gold a year against the imports of 900 tonnes, he added.