India’s gold market sparkles on increased demand, after cuts to import duty
In July, the federal government cut the import duty on gold from 15 per cent to 6 per cent, helping to ease record-high prices.
A salesman arranges gold bangles inside a jewellery showroom on the occasion of Akshaya Tritiya, a major gold buying festival, in Mumbai, India, May 7, 2019. (File Photo: REUTERS/Francis Mascarenhas)
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MUMBAI: Jeweller Rakesh Bachhawat is expecting a gold rush for his shop in the upcoming wedding and festive season.
For some time, business at his store on the outskirts of the Indian financial capital of Mumbai had been sluggish – but not anymore.
The federal government announced in its budget two months ago that it would cut the import duty on gold from 15 per cent to 6 per cent.
The move in July helped ease record-high prices and boost domestic demand of the rare commodity.
“A lot of people are investing in gold and I expect a 10 to 20 per cent increase in business growth this season. I'm 100 per cent certain of this,” said Bacchawat.
Local media has since reported as much as a 30 per cent jump in sales for some jewellers.
Indians buy physical gold in the form of jewellery, bars and coins. It is a form of investment for some, and a means of storing wealth for others who do not have bank accounts.
BRIGHT OUTLOOK FOR GOLD
Gold consumption in the world’s second-largest gold-buying market took a hit last year, when demand was weighed down by high prices. It fell 3 per cent on the year to around 750 tonnes.
After July’s adjustment on import duties, the outlook is now more promising.
The World Gold Council estimates that the changes made in the budget could lead to consumers in India demanding at least 50 tonnes more of the precious metal in the second half of this year.
India's gold consumption in 2024 is now projected to hit up to 850 tonnes.
“We believe that the quarter of October, November and December (this year) will perhaps be one of the most significant consumption quarters that we would have witnessed in a long period of time,” said the trade association’s India CEO Sachin Jain.
Gold in India is currently trading at about 73,000 rupees (US$870) per 10 grams.
Industry insiders said that if not for the lower import duty, the rate could have been as high as around US$950.
WHY DID INDIA LOWER IMPORT TAX?
Industry officials said the government slashed the import duty on gold to accomplish two things – reduce the price to boost domestic demand, and curb smuggling activities by making it less lucrative.
Official data showed that gold smuggling has been on the rise in India, with an intricate network of smugglers illegally sneaking the metal into the country via land, sea, and air routes.
In 2023 alone, authorities seized more than 3,900kg of gold in the highest number of cases in at least three years.
“Now, with the customs duty getting dropped to the current levels - and when you smuggle there is a cost, it doesn't come for free - I think the arbitrage reduces to a very small level, which wouldn't be incentive enough,” said Jain. Arbitrage refers to the simultaneous purchase and sale of an asset in different markets to achieve a certain profit.
Businesses, too, said the tax reduction is a move in the right direction.
“We are very thankful that finally they have done this duty cut, and this will help the organised trade to scale up much faster all over India,” said Colin Shah, founder and managing director of Kama Jewelry, a retailer and exporter in the western suburb of Andheri.
Nevertheless, concerns remain that gold prices could suddenly jump on factors beyond India’s control, including geopolitical tensions, interest rate cuts from the Federal Reserve and the upcoming US elections.
