By James Mathew
UAE is the main destination for Indian gold jewellery, with the Gulf country accounting for more than 80 percent of India's gold jewellery exports
India’s gold imports saw an unusual spurt in the last three month-period, despite the July-August quarter traditionally being a lean season, leading to speculation that domestic jewellery makers and traders are stocking up the yellow metal fearing an imminent further hike in import duty on gold.
Gold imports currently attract 10% duty in India. Along with almost 15 percent slide in rupee exchange value and a 3 percent GST (Goods and Services Tax), gold prices are already ruling about 28 percent higher in the Indian market vis-à-vis its international price.
Viewed in this backdrop, the sudden spike in gold imports has surprised many industry analysts.
Industry watchers are now waiting to see whether there would be any significant increase in jewellery exports from India in the coming months, as there would be a lag period because of manufacturing time.
UAE is the main destination for Indian gold jewellery, with the Gulf country accounting for more than 80 percent of India’s gold jewellery exports. Many of the leading Indian jewellery retail chains have also set up their outlets in several cities of UAE and beyond.
Gold is usually the first target when policy makers in Delhi frame measures to contain widening current account deficit (CAD).
Gold imports more than doubled to about 100 tonnes in August and jumped by 23% to 75 tonnes in July this year.
While the actual gold import figures for September 2018 are still being collated, the quick estimate by India’s commerce ministry indicated a 51.47% increase in value terms.
While traders are agog with talks of Government resorting to a further hike in gold import duty, industry bodies also cite other reasons for the spurt in imports.
“There could be a possibility that traders and jewellery makers are stocking up a bit for the approaching Diwali and marriage season in India which see a huge pick up in domestic demand, due to which gold imports in the July-Sept 2018 quarter might have gone up,” P R Somasundaram, India Managing director of World Gold Council, told Arabian Business.
Trade sources said the speculation about another round of hike in import duty on gold started making the rounds when the CAD in India’s foreign trade has reached 2.4% of the country’s GDP by end of the second quarter of this year. The CAD is widely expected to reach 2.8 percent by end FY19.
The figures cited by India Bullion and Jewellers Association, however, put the imports at slightly lower levels of 90 tonnes and 68 tonnes for August and July 2018 respectively. Even at 90 tonnes, gold imports have almost doubled in August compared to same period 2017.
Significantly, the surprise spike being witnessed in gold imports comes in the backdrop of a consistent fall in imports, consumption and gold jewellery sales in India in the last several months, triggering talk of Indians’ love for the yellow metal finally showing some waning effect.
The World Gold Council data showed gold shipments into India declined by 38 percent during the April-June 2018 quarter to 170 tonnes, from 274 tonnes in the corresponding period of last year. On a 6-month basis from January this year, gold imports declined by 13.51 percent to 480 tonnes from 555 tonnes in the same period of 2017.
Mirroring the declining trend in gold consumption and jewellery sales, even investments in gold trade on the Indian commodity exchanges have been witnessing a declining trend in the recent months. About 30% of the domestic gold demand is by way of gold-linked investments on commodity exchanges.
“Due to the rising price difference in India for gold due the sliding rupee exchange value and duties and taxes, along with a sustained bull market run in the equity market, there has been a significant fall in gold investments in the commodity exchanges in the recent past,” Ajay Kedia, MD of Kedia Comtrade, told Arabian Business.
Industry watchers say there have been indications of a growing trend of gold jewellery being bought and brought to India by Indians working in the Middle East, as well as a section of Indian tourists bringing gold to the UAE to take advantage of the significant differences in prices there.
India Bullion and Jewellers Association (IBJA) Secretary Surendra Mehta, however, told Arabian Business that the quantity of gold jewellery being brought by Indians from Dubai and elsewhere in the UAE would be insignificant because of the existing customs restrictions.
Gold jewellery worth up to Rs 50,000 ($685) only is allowed per person to be brought by travelers to India.
“Customers in India always compare domestic gold prices with the previous levels in India only, though there could be differences in prices in India and the international market,” Mehta said, adding that the fluctuations in demand trend in gold and jewellery are because of seasonal factors and that Indians love for the yellow metal still remains intact.