India’s gold imports in July plunged 55% from a year ago to the lowest level in three years as a rally in local prices to a record high and a hike in import taxes curtailed demand, a government source said on Monday.
Lower purchases by the world’s second biggest consumer of gold could cap gains in global prices that jumped to the highest level in over 6-years early this week. India imported 39.66 tonnes of gold in July, down from 88.16 tonnes a year ago. In value terms, the country’s imports in the month fell by 42 per cent to $1.71 billion.
Local gold prices jumped to record high last month tracking gains in overseas market and as New Delhi raised import taxes on the precious metal to 12.5 per cent from 10 per cent earlier.
The surprise hike in the import tax and price rise badly affected demand. Traders believe demand for gold is not improving and even in August, imports would be much lower than last year. As retail demand has also dried up, jewellers are placing import orders with banks. India’s gold demand is likely to soften in the September quarter as record high local prices curtails buying, the World Gold Council said last week.
Meanwhile jewellers in India are turning to the grey market to sell smuggled bullion or jewellery at a discount, escaping a 15.5 per cent (12.5 per cent import duty + 3 per cent GST) duty they have to pay in their legitimate business.
Demonetisation in November 2016 and the introduction of goods and services tax (GST) in July 2017 spurred jewellers to register as small and medium enterprises (SMEs) or micro, small and medium enterprises (MSMEs), but they are now scaling or shutting down their businesses because they can’t compete with untaxed grey market gold.
New comers in gold businesses are gradually going back to their unorganized sector business by closing down their existing business, reports Business Standard. The process of the shift has begun even before budget. Thousands of jewellery manufacturing units have shut down their shops in the last few months.
The prevailing duty of 15.5 per cent is too attractive for grey market players. The World Gold Council (WGC) estimates India’s gold smuggling at 100 tonnes for the last few years which, according to trade sources, has increased significantly since the import duty was increased in the Union Budget 2019. The increase in import duty has helped growth of the parallel gold economy through bullion import for duty evasion. In Mumbai market unofficially imported gold is sold at 1.5 to 2 per cent cheaper to official gold.