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The adage "the pen is mightier than the sword" was vividly demonstrated by Finance Minister Nirmala Sitharaman with a single stroke.
By announcing a reduction in gold customs duty in the Union Budget 2024, gold prices plummeted by over five percent, erasing more than ₹10.7 lakh crore in value within a single day. This action marked the sixth largest wealth destruction ever recorded, surpassing similar impacts seen in the equity markets. More significantly, this reduction in wealth likely affected a larger number of households compared to major equity market declines, due to the widespread ownership of gold among Indian families.
The decline in gold prices predominantly affects Indian households, which collectively hold some of the largest gold reserves globally. Currently, Indian households possess approximately 11 percent of the world's total gold—surpassing the gold reserves of major developed countries like the USA, Germany, Switzerland, and the IMF combined. Gold prices had been on a significant upward trend since the start of the year, rising by 14.7 percent and outperforming the Sensex, which had increased by about 11 percent over the same period. However, in July, MCX gold prices fell by nearly 5.2 percent.
The Finance Minister's Budget announcement included a reduction in the Basic Customs Duty on gold and silver from 10 percent to 6 percent and the Agriculture Infrastructure & Development Cess (AIDC) from 5 percent to 1 percent. This move effectively reduced the total taxes on gold from approximately 18.5 percent (including GST) to 9 percent.