India hikes import tax on gold by 50%

India, the world's top gold consumer, on Monday hiked the import duty on the precious metal by 50 percent in an effort to reduce demand and help stem the country's ballooning current account deficit. Gold purchases are one of the biggest contributors to India's current account deficit -- the broadest measure of trade -- which hit a record $22.3 billion, or 5.4% of GDP, in the July-September quarter, as imports outpaced exports. The government said the rise in the import duty on gold to six percent from four percent would take effect immediately. Last year it doubled the duty on gold to four percent. "The duties will be reviewed after some time if there is a moderation in the quantity of gold that is imported into the country," Economic Affairs Secretary Arvind Mayaram told reporters. The hike is part of a wider set of measures to improve the finances of Asia's third-largest economy, which faces stubbornly high inflation, a sharp slowdown in growth as well as the hefty current and fiscal account deficits. Ratings agencies have threatened to downgrade India's sovereign investment rating to junk status unless the government takes steps to close the nation's the deficits. India has long been the world's biggest buyer of gold with purchases strongest during the religious festival and wedding seasons. Last year's rise in the import duty on gold dampened demand temporarily but purchases picked up again. Many Indians -- especially in rural areas where there are few banks -- purchase gold in the form of jewelry, bars and coins as a hedge against inflation.