India Gold Demand 'Up 15-40%' on Shock Cut to Import Duty
Monday, 7/29/2024 10:01
Surprise after gold-smuggling surge, record price discounts...
The GOVERNMENT of India has slashed import duty on gold and silver, more than halving the incentive offered to smugglers in the precious metals' No.2 consumer market and boosting industry forecasts for this autumn's festive and wedding demand as Rupee prices drop from record highs.
Last week's surprise move – announced by Finance Minister Nirmala Sitharaman as part a new tax simplification drive – came after
a decade of lobbying by India's bullion and jewelry industry was
repeatedly spurned by the BJP Government led by Narendra Modi and re-elected but without an outright majority in June.
Now slashed from a modern-era record of 15% to just 6% for gold and silver bullion, India's heavy rate of import duty has been blamed for a surge in smuggling as well as growing exploitation of loopholes, trade agreements and tax differentials for unrefined doré and gold-plated platinum.
Such 'unofficial' inflows meant that, compared to gold prices in London – heart of the precious metal's global trading and storage network – plus General Sales Tax rates of 3% and the 15% import duty, gold in India traded at a discount to the 'official' quote almost without pause since 2015 according to figures gathered and published by the mining industry's World Gold Council.
That discount
hit a record $110 a week before Delhi's surprise move, the widest ever on WGC data starting 2012.
Specialist analysts
Metals Focus put the pre-cut discount at $70-80 per ounce, while news agency Reuters quotes $65, the deepest discount in 6 months.
"India has become a hub for Sudanese syndicates running a booming trans-Saharan gold racket," says
The Week magazine,
reporting how flows from war-torn Sudan – estimated as Africa's 3rd largest gold mining nation and the 10th largest worldwide – have been smuggled by female kuruvis (meaning "sparrows", a slang term for human mules) flying into India from the United Arab Emirates or walking across the border from Nepal wearing gold dust or paste on their skin and swallowing or hiding gold capsules in body cavities.
Other smuggling routes include fishing boats sailing between northern Sri Lanka and the south-eastern state of Tamil Nadu, the free-movement border with Myanmar, and flights from the UAE.
Staff from the UAE's consulate in Kerala are among 27 accused of using diplomatic bags to smuggle almost 100 kilograms of gold into India between 2019 and 2020.
A drive by the "lean" staff of India's Directorate of Revenue Intelligence saw national seizures of illegal gold over the 2022-2023 fiscal year reach 4 tonnes, nearly equal to the previous 2 years' combined and beating the pre-Covid year of 2019-2020 by 10%.
India's Comprehensive Economic Partnership Agreement (CEPA) with the UAE, signed in February 2022, also meant that imports of platinum bullion were charged just 5% duty rates and needed to contain only 2% of the white metal to qualify.
That loophole
spurred 13 tonnes of "platinum" consignments across the Indian Ocean in just 4 weeks to early July, beating 2023's full-year total as dealers imported platinum-plated gold.
Import duty differentials between gold bullion bars and semi-refined doré had already been equalized by the New Delhi government after a failed attempt to boost India's domestic
bullion refining industry saw huge over-capacity in the late-2010s. But doré still accounted for nearly 28% of gross bullion inflows in 2021-2023 on Metals Focus' data for the World Gold Council, up from less than 5% in 2012-2014.
In total, around 150 tonnes of last year's gross 805 tonnes of Indian gold imports were 'unofficial' – also known as 'grey' inflows – the consultancy says.
"Gold prices have fallen sharply due to a reduction in duties and a correction in global prices," says Harshad Ajmera, owner of wholesale dealer JJ Gold House in Kolkata. "Many buyers who were waiting for this price drop are now entering the market."
"Historically, when gold prices fall, consumer enthusiasm tends to increase," agrees Suvankar Sen, CEO of Kolkata-based $880 million stock-market listed jeweller Senco Gold Ltd. After household demand fell earlier this year in the face of new record-high gold rates, "We
anticipate a 10-15% rise in sales due to lower gold prices" ahead of the autumn's key Diwali festival and wedding season.
Shares in Senco Gold (NSE: SENCO) leapt almost 10% on last Tuesday's announcement by finance minister Sitharaman, but have since fallen back while $36 billion-valued market leader Titan (NSE: TITAN) remains 5% higher and $7bn Kalyan (NSE: KALYANKJIL) trades 8% above its pre-announcement level.
"Indian jewellery demand was hit by record-high gold prices, but the duty cut will bring down prices and boost consumption," says Saurabh Gadgil, chairman of unlisted jewellers PNG in the western city of Pune.
While the plunge in domestic gold prices means existing inventories have lost Rupee value, retailers expect the resulting jump in consumer demand will more than offset that drop, Metals Focus says.
"Most anticipate a 30-40% increase in demand from current levels."
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