India’s gold import is projected to see a jump in the coming months after a 5 percent cut in import duties is expected to see domestic demand surge as prices fall.
The UAE stands to benefit most from the increased demand for gold, being the second largest exporter of gold to India which is the second largest consumer of the yellow metal in the world.
India’s finance minister announced on Monday a reduction in gold import duty to 7.5 percent from 12.5 percent duty in the 2021 budget.
Industry officials said the increase in imports could also lead to a pickup in India’s export of gold jewellery in the coming months.
The UAE accounts for about 75 percent of India’s gold jewellery exports, with Dubai accounting for the bulk of it.
“Though effectively, the duty reduction will be only 1.75 percent – after accounting for certain additional levies, including a 2.5 percent agriculture cess proposed in the budget – gold prices in India are expected to come down by about $10 per 10 gram,” Surendra Mehta, national secretary of Indian Bullion and Jewellers Association (IBJA), told Arabian Business.
Mehta said the price reduction is likely to lead to a surge in the demand for both gold jewellery and bullion in the Indian market, as there has been a lot of pent up demand due to the high prices and the pandemic-related restrictions.
“Since India depends majorly on imports to meet the domestic demand, this is expected to lead to an increase in imports as well,” Mehta said.
Boby Chemmanur (pictured below), chairman of the jewellery retail chain Chemmanur International Group, which has a major presence in the Middle East market, said the reduction in import duty will significantly reduce gold coming through the grey market, as the reduced margins will make trade through this route less attractive.
“This will also translate to a jump in import of gold to the country through the official channel,” Chemmanur told Arabian Business.
Although gold imports by India have been subdued for several months last year due to the combined effect of surging international prices and the pandemic-related travel and movement restrictions, they have been registering an uptick recently on the back of a softening trend in prices in the international market.
According to data released by the federal commerce ministry on Tuesday, gold imports posted a 154.70 percent jump in value terms in January, compared to the same month last year.
The pickup in gold imports comes after a 47.42 percent decline to $9.28 billion during April-October.
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