India, where the middle class clamours for gold, has imposed 2 percent additional tax, amounting to total 8% on the yellow metal, under pressure from the global financial institutions and the United States.
The world’s largest gold buyer wants to discourage gold-buying tradition of Indians and Hindus who are traditionally attached to the yellow metal though the reason stated was to curb record current-account deficit.
The move comes at a time when the World Gold Council predicts record quarterly demand for the metal in the country.
So far, India has tripled the tax this year and expects gold imports to fall by at least 20%.
But the move, which comes just one year before the national elections may help BJP to win the next elections. Indian women are more attached to their gold to their husbands, as is the norm among the country’s massive middle class, which decides who should govern the country. The move may trigger massive discontent among the middle class and see the opposition and Hindu nationalist party BJP to romp home after almost ten years of gap.
“Physical demand at these sort of price levels is still very strong and the Indian government wants to curb imports,” Robin Bhar, an analyst at Societe Generale SA in London, told Bloomberg. “It will have an impact on demand because already we’re seeing a whole raft of restrictions announced.”
But more than that, it will have serious ramifications on India’s fast unveiling political scene, which is clearly moving closer to BJP’s winning streak next year. Apart from the tax on gold, another anti-incumbency move showed up in top Yoga teacher Baba Ramdev openly announcing that he would support BJP and its current leader Narendra Modi in the next elections as the prime ministerial candidate.
With Congress certain to project its young leader Rahul Gandhi, the fight may erode much before it starts at the national level.