New Delhi: The recent spike in gold prices in India has taken a toll on domestic demand, and this is unlikely to change even during Diwali, All India Gem and Jewellery Domestic Council Chairman N. Anantha Padmanaban said.
India's gold demand in 2018 was at 760.4 tn. In Jan-Jun this year, demand was at 372.2 tn, data from the World Gold Council showed.
Demand was 10-15% lower in the three months prior to the Union Budget on Jul 5. "...(The Union) Budget came and everything changed," Padmanaban told Cogencis in an interview.
In the Union Budget, the government increased the import duty on gold to 12.5% from 10%. The hike curtailed the capacity of refiners to import the precious metal ore, further increasing the influx of cheaper gold through grey channels.
The industry body has asked the government to consider reducing the import duty on gold and forming a steering committee to work on the various disadvantages that the industry is facing.
Gold prices on the Multi Commodity Exchange of India touched a lifetime high of 39,885 rupees per 10 gm on Sep 4 due to geopolitical tensions and a sharp fall in the Indian currency. Though prices have since corrected to 37,883 rupees per 10 gm, demand has remained thin.
Poor demand, coupled with higher import via grey channels, could push India's gold import to as low as 550 tn this year from about 700 tn in 2018-19 (Apr-Mar), Padmanaban said.
Gold demand is likely to revive once the economy recovers and GDP growth improves, he added.
Below are edited excerpts of the interview:
Q. What is the reason behind the sharp fall in Indian gems and jewellery exports this year?
A. The economy is slowing down everywhere in the form of recession and there is a slowdown in business. All these factors put together have reduced exports.
Q. Where do you see gold and silver prices in the near future?
A. Domestic gold prices may touch up to 42,000 rupees per 10 gm if there is some crisis in the world. I don't see gold prices cooling until there is an agreement between the US and China over the (trade) tariffs...It can go up by another 5% if things are not right. Silver may go up to 55,000 rupees a kg by December.
Q. How much gold was imported during Aug-Sep when prices touched a lifetime high?
A. Gold imports fell 70% year-on-year to 30 tn in August due to the immediate impact of the duty hike and higher gold prices...In September, gold imports were almost same at 30-35 tn.
Q. What about demand for gold in India this year?
A. Gold demand is not that great... We may see gold imports going down to 550 tn in Apr-Mar this year against 700 tn last year due to higher prices.
Q. Given the higher prices this year, when do you see gold demand reviving?
A. During the wedding season and Diwali, there could be a slight pickup in demand due to seasonal gifting, but consumer budget will be lower this year. Instead of buying 100 gm, people will buy 75 gm. So, quantity-wise demand will come down but value wise, it will be the same.
Actual revival will happen when the economy performs better, and GDP growth improves. With the reduction in corporate taxes, now we can see a lot of money coming into high-end jewellery. But for the yellow metal to sell at the lower level, demand has to be there.
Q. What is the industry looking to now, especially as the sector suffers through the rise in import duty?
A. We have met Finance Minister Nirmala Sitharaman twice in the past two months. We have asked her not only for a cut in import duty but also to form a steering committee where the ministry can sit and work on all the disadvantages we are facing such as equated monthly instalments and credit card purchases, which are not allowed on gold jewellery. Further, there is commission on credit card where banks charge 1.5% depending on turnover. We want them to bring it down to 0.5%.
...Moreover, the industry is also not receiving bank finance. Despite 100% collateral, they are not funding us. A few people have made mistakes, but you cannot penalise 200,000 jewellers just because of that.
Q. Is there any update regarding the gold spot exchange?
A. There is no update yet. Maybe they (the government) will come up with it in the next two-three months. They will announce (something on the proposal) before March because we are (already) lagging. China had come up with a gold policy 15-16 years ago. (It) is a benefit for the country (China) and the industry. These are compulsions for the industry to take the country forward.
Q. Apart from gold, what is the demand scenario in diamond jewellery?
A. Demand (for jewellery) has come down; so people prefer gold over diamond. ...internationally as well, diamond exports have gone down and a lot of stock is there with exporters. Moreover, banks are also not funding diamantaires, so they are not able to import rough diamonds.
