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The World Gold Council (WGC) data showed India’s gold demand at 262 tonnes in the last quarter of 2012 compared with 185.5 tonnes in the corresponding period last year. Despite the government four-fold increase in customs duty to discourage gold imports, its arrival into the country saw a minuscule 12% decline at 864.2 tonnes in the calendar year 2012 compared with 986.3 tonnes in the previous year.
“India’s gold demand is largely driven by a combination of both retail and urban consumers. While urban consumers are raising gold holding in proportion to their rise in income be it salaried or business class, continuous upward revision in minimum support price (MSP) of agri commodities left more investible surplus at the hands of farmers. Being gold the only next to food and shelter, this investible surplus is coming into gold from rural India,” said Umesh Parekh, Managing Director of Shree Ganesh Jewellery House Ltd.
In January 2011 when import duty on gold was prevailing at less than one percent, the government presumably thought that an increase in tax would make the precious metal costlier which would ultimately translate into an automatic reduction in consumers’ affection towards gold. Considering that, the government first doubled duty to 2% on January 17, 2011 which was further raised
to 4% in the Union Budget in March 2011.
“Retail consumer demand comprises around 75% of India’s overall gold demand, however, remained intact irrespective of gold import duty,” said Parekh.
Retail consumers buy gold jewellery for gifting to their kiths and kins especially on wedding and other such celebrations. Gifting gold jewellery to kids has become almost mandatory especially on the occasions of their wedding. Young and enthusiastic investors buy gold coins as a safety for future.
Apparently, jewellery demand in India shot up a staggering 34.8% to 153 tonnes in the fourth quarter of 2012 compared to 113.5 tonnes in the same quarter previous year. In the same period, however, investment demand also jumped over 51% to 108.9 tonnes from 72 tonnes.
“Indian consumers buy gold for safety against inflation. Since, inflation has been a major problem for average Indian households, they keep refuge in gold as a savior,” said Mehul Choksi, managing director of India’s largest branded jewellery producer and retailer.
| Aspects worth considering | |
| Tips | Precautions |
| Buy only branded products | Avoid intrinsic designs |
| Get ornaments tested and certified from a renowned and independent third party evaluator | Do not buy traditional ornaments from perennial jewellers |
| Pay through cheque | Ensure gold and stone content in region specific items |
| nsist on getting a receipt to ensure resale value | Do not trust the jeweller on verbal assurance |
| Ensure hallmarking | Do not buy resale branded jewellery from other than the brand house itself |
| Collect purity and weight certificates, read fine prints carefully | Avoid buying from unorganized sector retailers without proper sales tax and VAT registration numbers |
| Bifurcate gold portfolio between jewellery and coins in 75 and 25 ratio | Do not put investible surplus in one basket |
| Sell investment products first, in case of need | Do not mortgage gold jewellery for long term without equitable fund in sight |
| Keep gold holding in home and bank locker | Avoid storing in one place without a proper locker |
| Polish jewellery in every two years to give it an original look | Do not keep jewellery and certificates together |
According to Choksi, gold demand would continue especially as a compulsory buying for wedding and other such opportunities in addition to its upbeat demand for auspicious occasions. The yellow metal’s appeal as a hedge against the worst economic time has also been driving its demand in India.
Consequently, gold’s import in the quarter ended March 31, 2013 is expected to remain around 200 tonnes of which around 100 tonnes already imported in January. Rising imports against exports widen the trade deficit resulting into proportionate increase in the CAD, a major concern for the government to address through various options including a curb on gold import. Jewellers, however, see the government measure as an encouragement to smugglers.
“Huge quantity of gold is coming into India through Singapore, Dubai, Nepal (with 2% import duty) and Bangladesh through smuggling where the government has no control. The increase in import duty has just added some additional money to the government’s kitty. Being the consumer-oriented products, its consumption cannot be stopped,” said Ashok Minawala, an industry veteran and ex-chairman of the apex domestic centric trade body All India Gems & Jewellery Trade Federation (GJF).
Gold import into India, therefore, is expected to remain between 850 and 950 tonnes irrespective of measures and aberrations, he added.
