In a draft paper prepared by the RBI seeking public opinion until January 18, the banking regulator has proposed a financial instrument linked to gold to curb the demand of its physical holding.
Similarly, the Finance Ministry has proposed to raise import duty on gold to 6 per cent after raising the same four–fold last year.
"At the proposed duty, importers would have to pay $120 for an ounce of imported gold at the current prevailing price.
"Hence, India's importers would prefer to bring physical gold through an unofficial route.
This means, the government is encouraging gold smuggling," said Rajan Venkatesh, Managing Director (India Bullion), ScotiaMocatta, one of the largest gold suppliers in India.
He added that many customers in West Bengal have complained about large-scale gold smuggling currently happening through Bangladesh.
"A further increase in import duty would escalate the situation further.
"This will also reduce the government's tax collection through
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