Gold Price in Nepal soars above India amid customs duty disparity

KATHMANDU: The price of gold in Nepal has significantly outpaced that in India following a recent reduction in customs duty on gold imports by the southern neighbor. Last Tuesday, India’s Finance Minister, Nirmala Sitharaman, announced a 6 percent cut in customs duty while presenting the Union Budget for the fiscal year 2024/25. This move has caused the price of gold to drop below INR 70,000 in the Indian market, according to Indian media reports.

In stark contrast, Nepal’s former Finance Minister, Barsha Man Pun, had increased the country’s gold customs duty by five percentage points to 20 percent on May 28. This hike has resulted in Nepalese gold traders facing an additional burden of up to NPR 28,000 per tola due to the high customs rates.

The disparity in customs policies has led to a growing price gap between the two countries. Gold in Nepal is now at least NPR 35,000 more expensive per tola than in India, raising concerns about potential gold smuggling activities. Traders have expressed worry that the reduced customs rate in India could widen this gap further, making smuggling more attractive.

Gold Smuggling Concerns Rise

With the open border between Nepal and India, smuggling of low-value items such as sugar, clothing, and seeds from India to Nepal has been ongoing. While gold has been smuggled into Nepal from Dubai, Qatar, Hong Kong, and China, there was little evidence of gold smuggling from India until recently. However, recent changes have sparked suspicion that India might become a new hotspot for gold smuggling.

“With open borders on three sides, the risk of smuggling has increased because gold is more expensive in Nepal than in India,” said Mani Ratna Shakya, former president of the Federation of Nepal Gold and Silver Dealers’ Association. “It’s well-known that everything from vegetables to clothing is smuggled for a few extra rupees. Even before India reduced customs duties, the price difference in gold between India and Nepal has been significant since the budget was announced. We have heard of gold and silver smuggling already occurring in the Terai region,” he added.

Global Gold Prices Decline as US Economy Strengthens

This week, gold prices have fallen in the global market. Analysts attribute this decline to improvements in the exchange rate of the US dollar and its impact on the strengthening US economy.

Gold prices have also decreased in Nepal’s domestic market. On Sunday, the price was NPR 146,200 per tola. It rose slightly to NPR 146,300 per tola on Monday and remained stable on Tuesday. However, prices began to decline, reaching NPR 144,700 per tola by Friday, which is NPR 1,500 lower than the price at the beginning of the week.

The price of silver also experienced a slight decrease. The price was NPR 1,810 per tola on Sunday and dropped to NPR 1,730 per tola by Friday.

As the price disparity between Nepal and India continues to grow, it remains to be seen how the Nepalese government will address the increasing risk of smuggling and the broader economic implications of the customs duty policies.