Gold imports could fall 25 percent on duty hike

LONDON/MUMBAI Thu Jan 17, 2013 10:19pm IST

A goldsmith holds finished gold bangles at a workshop in Kolkata January 16, 2013. REUTERS/Rupak De Chowdhuri

A goldsmith holds finished gold bangles at a workshop in Kolkata January 16, 2013.

Credit: Reuters/Rupak De Chowdhuri

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LONDON/MUMBAI (Reuters) - India's gold imports could drop by up to a quarter this year if, as expected, the government again raises the duty on the precious metal, the chairman of the All India Gems and Jewellery Trade Federation said on Thursday.

Bachhraj Bamalwa said he believes import duty on gold will be hiked to 6 percent in the budget scheduled for February 28. The rate was doubled to 4 percent last as part of moves to cut India's trade deficit.

"Going by the government's attitude towards gold and the Reserve Bank of India's latest recommendations, we fear gold imports will be further curtailed by at least 20-25 percent compared to last year," he said in an interview with the Reuters Global Gold Forum.

"The increase in duty will make gold costlier in India, and at this price investors will not be interested in gold, keeping in mind that the Indian rupee is also constantly weakening."

Finance minister P. Chidambaram reignited speculation for another duty hike earlier this month, hinting at cutting gold imports to resolve a record current account deficit that he referred to as "worrying".

Gold is often used as an investment asset by Indians, but represents a drain on foreign currency reserves. A senior finance ministry official told Reuters the government could increase the import duty on gold by 1-2 percentage points.

The most active gold contract on the Multi Commodity Exchange outperformed a 10 percent rise in spot gold last year to climb nearly 13 percent, hitting a series of record highs above 32,000 rupees per 10 grams.

If the government also presses ahead with plans for bullion-backed paper investment products such as gold bonds, and a controversial proposed tax amnesty on such investments, imports could fall much further, by 60-70 percent, Bamalwa added.

Bamalwa said amnesty schemes could bring out gold held by Indian household for generations, estimated at between 20,000-25,000 tonnes of metal.

India's gold imports are estimated by the Bombay Bullion Association in November to have fallen by as much as 42-45 percent in 2012 to around 532 tonnes after the doubling of import duty on gold.

JEWELLERY DEMAND LIGHT

India is the world's biggest gold consumer, with a jewellery industry estimated to be worth $200 billion a year. Bamalwa said jewellery demand had been light so far this year, though the advent of the wedding season in mid-January was likely to lift sales.

Bamalwa said attempts by the government to wean Indian consumers off using gold as a store of value were unlikely to make much headway in the country.

"The majority of gold purchases in India come from rural part of the country, and many (buyers) do not even have a bank account," he said. "The villagers have neither knowledge nor belief in other financial instruments, like stocks."

"Indian appetite for gold is not going to die overnight," he said. "But if gold is allowed to be imported into India through illegitimate channels, it is going to create problem in the gold industry."

Jewellers went on strike across India last March after the government unveiled a 0.3 percent excise levy on unbranded jewellery and a tax on transactions worth more than 200,000 rupees. Bamalwa said it was unlikely that such action would be repeated this year.

"Our concern is to restrict smuggling activity, which is the government's job," he said. "Last time the industry went on strike (it was) due to the imposition of excise duty on jewellery, for which the industry is not ready."

(Editing by Veronica Brown and David Cowell)

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Comments (1)
AnandRavi wrote:
””1.Will it really increase smuggling ?? if six percent is the gain – ts it risk free – the gains only after completing 17 odd consignments- till then the smuggler stands at capital risk. The profits are only after this ?? With the present vigilance and if the customs are serious – even one consignment of every seventeen is enough for the smuggler to go out of business. 2. Increase of duty is going to be passed on to the consumer. The industry is shedding crocodile tears for consumers. The same industry initially protested when gold was Rs 600/ gram with many sob stories of indian poor unable to get married with the price rise. Irony is the industry retailers went on opening chain of retail outlets with every price rise and stood to gain as they have rarely compromised on their profit margins. Gold price in 2005 was Rs600 / gram and now it is above Rs3000/ gram. Needless to mention that with the samel profit percentage the retailers stood to gain and the artisans were always X rs for every gram they worked and not in percentages. The general public money always got robbed with less purity metal which is the one reason the industry strongly objected to mandatory hall marking. The difference between the International price and to the Indian Public is always more than ten pecent even with zero duty. Hence the industry once again is misrepresenting. The psyche of india public have been completely exploited by the retailers with promoting gold as the only alternative and store of wealth with heavy jewellery 916 items .Instead if the country opens for light weight jewellery then this alone will bring down the consumption . The retailers wont be interested to sell light weight jewellery because their profits will correspondingly fall down. The Indian consumers are always taken for a jolly ride both by the international traders wth increase in prices and local traders with less content of gold than for what they are charged. Last but not the least – the industry is known for evading taxes. Go across to any outlet be it large or small- they will be too happy to give you jewellery without bill. Let the jewellers not pretend as if they are good tax payers. Once again let not the industyr or the retailer shed crocodile tears for consumers and instead let them reduce their profits by the excise duty component which is only six percent while the present profit margin of any retailer is above 12 percent in cash sales. God Save the Public from these greedy jewellers””

Jan 22, 2013 8:15am IST  --  Report as abuse
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